REPORT AND CONSOLIDATED ACCOUNTS 8 - Banco InvestREPORT AND CONSOLIDATED ACCOUNTS ’18 Lisboa Av....

REPORT AND CONSOLIDATED ACCOUNTS ’18

LisboaAv. Eng. Duarte Pacheco, Torre 1 - 11º, 1070-101 LisboaTel.: +351 213 821 700 Fax: +351 213 864 984 [email protected]

PortoPç. do Bom Sucesso, nº 131 - Ed. Península, Salas 502 a 504 - 5º, 4150-146 PortoTel.: +351 226 076 390 Fax: +351 226 095 297

www.bancoinvest.pt

2

Table of Contents

1. Governing Bodies ................................................................................................................................................... 3

2. Main Financial Indicators ....................................................................................................................................... 5

3. Banco Invest ........................................................................................................................................................... 7

Who we are ............................................................................................................................................. 8

What we do ............................................................................................................................................. 8

Awards ................................................................................................................................................... 10

Highlights of the financial year ............................................................................................................... 10

4. Macroeconomic background ................................................................................................................................ 12

Global economy ..................................................................................................................................... 12

Portuguese economy ............................................................................................................................. 12

Financial markets.................................................................................................................................... 13

5. Business .............................................................................................................................................................. 13

Balance Sheet and Net Income ............................................................................................................... 13

Brokerage............................................................................................................................................... 18

Financial Services and Institutional Custody ............................................................................................ 18

Financial assets and amortised cost......................................................................................................... 18

Financial assets at amortised cost ........................................................................................................... 18

Debt securities........................................................................................................................................ 19

Treasury and Capital Markets ................................................................................................................. 21

6. Transactions with Directors .................................................................................................................................. 23

7. Risk Control ......................................................................................................................................................... 23

Market Risk ............................................................................................................................................ 24

Credit Risk.............................................................................................................................................. 24

Liquidity Risk .......................................................................................................................................... 25

Operating Risk ....................................................................................................................................... 25

8. Future Prospects ............................................................................................................................................... 26

9. Subsequent events ............................................................................................................................................... 26

10. Net Income and its Appropriation ........................................................................................................................ 26

11. Acknowledgments ................................................................................................................................................ 26

Board of Director’s Report

1. Governing Bodies

4

1. Governing Bodies

General Meeting of Shareholders

Charmain

Francisco Xavier Ferreira da Silva

Secretaries

Helena Isabel Nunes Menúria Neves Francisco

Paula Alexandra Silva dos Santos Viegas

Board of Directors

Charmain

Afonso Ribeiro Pereira de Sousa

Deputy Charmain

António Miguel Rendeiro Ramalho Branco Amaral

Members

Francisco Manuel Ribeiro

Luís Miguel da Rocha Barradas Ferreira

Marília Boavida Correia Cabral

Alexandre Wende Dias da Cunha

Carlos António Antolin da Cunha Ramalho

Miguel Alves Ribeiro Fontão de Carvalho

Audit Board

Charmain

AJean-éric Gaign

Members

José Manuel Lopes Neves de Almeida

Luis Alberto Monsanto Póvoas Janeiro

Statutory Auditor

KPMG, SROC, SA, represented by Miguel Afonso

2. Mail Financial indicators

6

2. Main Financial Indicators

Indicators (Euros) 2015 2016 2017 2018

Net interest income 12,251,235 12,991,062 16,433,483 20,415,619

Net income from financial operations 7,350,129 4,424,794 4,321,877 -689,976

Net fees and commissions income 1,711,339 2,298,047 5,393,738 6,986,101

Other operating income / (losses) -2,856,559 -186,345 134,391 1,993,808

Net operating revenue 18,456,144 19,527,558 26,283,489 28,705,552

Staff costs -5,396,517 -6,716,762 -8,386,236 -10,153,804

Other administrative costs -4,643,361 -5,068,711 -6,285,362 -7,692,853

Overheads -10,039,878 -11,785,473 -14,671,598 -17,846,657

Amortisations and depreciations -455,811 -712,616 -930,497 -945,379

Net provisions and impairments -5,453,719 -703,718 -2,852,026 -577,270

Income before taxes 2,506,736 6,325,751 7,829,368 9,336,246

Income taxes 355,007 -2,250,712 -1,981,164 -248,955

Non-controlling interests 7,176 -69,961 -54,610 -54,216

Net income for the year 2,868,919 4,005,078 5,793,594 9,033,075

Comprehensive income -3,520,104 3,783,273 4,248,698 7,519,812

Net credit extended (1) 246,931,130 229,029,588 328,848,647 545,042,001

Loans and advances to customers 137,356,950 144,158,935 257,045,291 312,163,551

Loans portfolio (2) 109,574,181 84,870,653 71,803,356 232,878,450

Funds attracted 495,123,016 394,658,209 497,241,828 643,052,322

Shareholders’ equity 100,054,973 103,082,651 106,391,777 112,896,361

Net assets 603,426,834 506,320,442 618,643,091 772,076,755

Transformation ratio 40.6% 41.0% 57.0% 53.5%

Liquidity coverage ratio (LCR) 141.9% 205.7% 269.9% 220.4%

Cost-to-income ratio 56.9% 64.0% 59.4% 68.5%

Net interest income (as % of Net operating revenue) 66.4% 66.5% 62.5% 71.1%

Provisions and impairments (as % of Net operating revenue) -29.5% -3.6% -10.9% -2.0%

Common equity tier 1 ratio (CET1) 18.3% 23.7% 20.3% 17.3%

Total solvency ratio 18.5% 23.7% 21.8% 18.1%

RWAs (as % of Total assets) 85.4% 77.5% 71.2% 74.2%%

(1) Financial assets at amortised cost, in 2018(2) Securities portfolio at amortised cost, in 2018

3. Banco Invest

8

Who we are

Banco Invest, S.A. (Banco Invest or Bank) was incorporated in 1997 as Banco Alves Ribeiro, S.A., with registered office in Lisbon and a share capital of 20 million euros, wholly owned by the Alves Ribeiro Group.

In October 2005, the name was changed to Banco Invest, seeking to unequivocally reflect its Mission: to be recognised by the market as the financial institution that best satisfies the needs of private, corporate or institutional customers, in all the financial products that distance themselves from a routine bank relationship, and require greater involvement, proposing solutions which traditional banking, with its standardised offer, is unable to provide.

Banco Invest is a specialised and flexible bank, with highly qualified experts, devoted to the offer of sophisticated investment and savings operations. In a globalised and sophisticated world, investment opportunities are increasingly complex, requiring higher levels of specialisation and monitoring, which do not fall within the typical standardised offer of retail banks.

Since its foundation, the Bank has based its performance on principles of Ethics, Innovation, Independence and Security, values that cut across all areas of the Bank’s operations. These values have allowed the Bank to achieve, since its incorporation, a sustained growth performance and levels of financial solidity far above the average of the national banking sector. At the end of 2018, the Bank’s solvency ratio stood at 18.1% and Resources from Customers reached 583.4 million euros, corresponding to an annual average growth of 20.3% since 2008. Last year, net operating revenue surged 2.4 million euros (9.2%) to 28.7 million euros.

What we do

Banco Invest is specialised in the management of the Savings and Investments of its private, corporate and institutional customers, offering an open and independent structure, with a global and diversified offer of products and services.

The Bank’s operations are currently divided into six main business areas: Asset Management, Brokerage, Specialised Credit, Institutional Custody, Corporate Finance and Treasury and Capital Markets.

The Asset Management area includes the management of Own Investment Funds (mutual and real estate), Distribution of Investment Funds managed by third parties, Discretionary Portfolio Management and issue of Structured Products.

Asset Management

The Asset Management department of the Bank is responsible for the management of Own Investment Funds, namely the Alves Ribeiro - Plano Poupança Reforma and Invest Ibéria mutual funds. The first is mainly composed of bonds and the second invests in the Portuguese and Spanish stock markets.

For the remaining geographies and classes of assets, Banco Invest selects and distributes investment funds managed by other management companies (third party funds), offering its Customers about 1,000 investment funds managed by the most prestigious national and international management companies. The offer includes various classes of assets and geographical regions, providing a wide range of diversification alternatives for different risk profiles. The majority of these investment funds are available on the Bank’s website. Customers can research and compare products independently or subscribe to thematic portfolios. Banco Invest, through Invest Trends, offers 32 thematic portfolios that reflect market trends and investment strategies that offer long term growth potential. The portfolios are exclusively composed of investment funds and constructed by the Asset Management team of Banco Invest.

3. Banco Invest

DiscretionaryManagement

StructuredProducts

Own InvestmentsFunds

Third PartyInvestment Funds

Research

9

The Discretionary Management of Customers’ investment portfolios is conducted in accordance with each customer’s risk profile and the intended level of return.

The Asset Management department structures and manages the Structured Products issued by the Bank, including structured deposits and others without guaranteed capital (notes). It is also responsible for the production of research and material supporting the sale of products on offer to Bank customers.

Structured Products

The Brokerage area includes the brokering and intermediation of shares, bonds, exchange traded funds, warrants and futures contracts. Banco Invest is present in the Prime Brokerage and Online Brokerage segments.

In the Prime Brokerage segment, the Bank offers a premium service, whereby Customers benefit from a direct relationship with traders. Traders’ activity includes technical analyses, namely analyses of trends and of theoretically ideal levels of subscription and sale of securities, as well as the management of Customers’ orders.

In the Online Brokerage segment, Bank customers can give orders through the website, from a desktop or mobile phone, or through the Invest Trader, Invest BTrader Plus and Invest BTrader Next trading platforms. The Invest BTrader Plus is a multi-award-winning online trading platform, with the largest offer of Forex, CFDs, ETFs, Futures, Options and Shares in the market. This simple and intuitive platform boosts the trading activity of Customers in all markets and has no account maintenance, securities custody or dividends commissions.

Invest BTrader

The Institutional Custody area is directed at independent management companies of mutual and real estate funds. In addition to custody, the services offered include financial intermediation, risk hedging and management products and asset management for institutional customers.

The Specialised Credit area is divided into four types of offer: Margin Account, Mortgages, Popular Economic Credit (CEP) and BI Credit.

The Corporate Finance area, operating under the Invest Corporate Finance brand, is composed of a team with more than 25 years of experience in domestic and cross-border transactions. The services offered include Corporate Finance Advisory Services (e.g. Mergers and Acquisition Consultancy, Valuation of Companies, and Strategic and Financial Consulting, among others) and Capital Market Transaction Advisory Services (e.g. Bond Issuance, Syndicated Loans, Project Finance, and Commercial Paper, among others). Banco Invest is an exclusive member for Portugal of IMAP, an international network of merger and acquisition advisory services with a presence in 40 countries. In 2018, operations carried out by the IMAP network came to approximately 10 billion US dollars.

The Treasury and Capital Markets area focuses its activity on liquidity and balance sheet management, optimisation of the use of funding and management of Banco Invest’s equity and bond portfolio.

The management of liquidity seeks to optimise the structure of the balance sheet in order to maintain the temporal structure of maturities between assets and liabilities under control, taking into account the foreseeable growth of the Bank. Management is also constrained by the need to maintain a level of sufficient liquidity reserves to maintain prudent levels of liquidity coverage. Liquidity risk is managed so as to keep pace with the growth of the Bank’s assets and ensure that cash flow needs are covered without incurring exceptional losses, maintaining in portfolio marketable assets which constitute a sufficient liquidity reserve. The definition of overall and partial risk limits is based on Value at Risk (VaR) methodologies, credit risk analysis - rating, stress tests and concentration limits per asset, per sector and per country.

The Financial Department is responsible for the management of the Bank’s Cash Flow and Own Portfolio, according to the policies defined by the Bank’s Investment Committee. The Bank’s Investment Committee, comprising the heads of the various areas involved, determines overall guidelines governing the Bank’s position. It is then up to the Financial Department to manage the Bank’s exposure to each market risk within the defined risk limits.

A vast selection ofinvestment products

and solutions

Proprietary Pricing andRisk Management

models

Regular updatesand continuous

follow-up

Deposits, Notes,Swaps ou OptionsVarious

Asset Classes

DedicatedTeam

Generationof Ideas

Campaign andTaylor Made

Products

DifferentProduct Formats

A vast universe ofpayoff structures

at a competitive price

Innovatitive ideasaccording to

market conditions

Cliente

“Top Online Broker 2017”pelo sétimo ano consecutivo

Winner 2018“Best Online Broker”

Lowest Cost”“Best for Frequent Traders”

Winner 2018“Best Mobile Apllication”

Winner 2018#1 “Comissions and Fees”

#1 “Active Trading”#1 “International Trading”

Winner 2018“Best Trading platform overall”“Best options trading platform”

10

Organisation of the Bank

Over the course of the year, the Bank reinforced its commercial capacity with the creation and development of an external network of Private Financial Advisers, with extensive professional experience in banking and financial services, distributed throughout the various regions of the country. At the end of 2018, the physical distribution network of Individuals Banking was composed of the Private Banking unit, located at the head office of the Bank, and 4 Investment Centres, located in Lisbon, Porto, Leiria and Braga, and of 14 Private Financial Advisers.

Awards

The good performance of Banco Invest continued to be recognised publicly in several areas of financial activity by national and international independent entities.

The Alves Ribeiro - Plano Poupança Reforma (PPR) Fund was considered the best retirement savings plan with a risk level of 4 (on a scale of 1 to 7), by the Portuguese Association of Investment Funds, Pension Funds and Asset Management (APFIPP), for the second consecutive year.

Also noteworthy was winning, for the third time, the Best Performance Portugal award, attributed by Structured Retail Products (SRP), a company of the prestigious Euromoney Institutional Investor PLC group, which assesses about 19 million structured products issued in 54 countries (values with reference to May 2018). The award ceremony was held in February 2019.

Highlights of the financial year

2018

March Launch of the mergers and acquisitions, capital market, project finance, asset finance and acquisition finance advisory services business, under the Invest - Corporate Finance brand.

March Launch of the new trading platform - BTrader Next, designed for both novice investors and more experienced traders. This new platform allows online access to more than 10,000 derivatives from a desktop, tablet or mobile phone.

December Invest Gestão de Activos – SGFIM ended the year with a 34.2% growth of its assets under management.

Business Areas

Private Banking & IndividualsInstitutional & Companies

Board ofDirectors

Support Areas

AssetManagement Brokerage

SpecialisedCredit

InstitutionalCustody

CorporateFinance

Treasury andCapitalMarkets

LegalDepartment Compliance

InternalAudit

RiskManagement

HumanResources

Strategic andOperationalMarketing

Accountingand Control

Operations andSecurities

InformationSystems

CreditRecovery

11

4. Macroeconomic background

Global economy

The world economy grew 3.7% in 2018, up 0.1 percentage points (pp) over the previous year, according to the main official estimates. After a period marked by some synchronisation, global growth in 2018 was characterised by a greater dispersion of growth rates among the various geographies, a trend that is expected to continue in 2019.

In the United States, Gross Domestic Production (GDP) growth accelerated from 2.2% in 2017 to 2.9% in 2018. For 2019, the world’s largest economy is expected to slow to 2.6%, as the effects of the fiscal stimuli of 2017 and 2018 begin to dwindle and the impact of fiscal policy on economic activity becomes more neutral. In turn, the annual inflation rate, in spite of the increase registered last Summer, slowed to 1.9% at the end of 2018, down a mere 0.2 pp relative to the end of the previous year. For 2019, the inflation rate is expected to rise slightly to the 2.4-2.5% range, reflecting the labour market conditions and the increase in discretionary consumption.

Economic growth in the eurozone reached a peak in 2017, having increased to 2.3%, and is expected to have decelerated to 2.0% in 2018, as a result of the decline in business confidence brought about by the trade protectionism of the United States, political uncertainty surrounding Brexit and the new Italian government. In spite of the expected slowdown, 2019 will be the sixth year of consecutive growth, with a GDP increase of 1.9%, underpinned by the growth of consumption and employment. The inflation rate increased during 2018, from 1.3% in January to 1.5% in December 2018, driven mainly by energy prices. In effect, excluding energy and food costs, the core inflation rate remained almost unchanged, at around 1%.

Growth of the world economy

Source: FMI

Emerging and developing economies, according to the IMF’s latest estimates, are expected to grow 4.7%, on average, in 2019. The dispersion among these countries remains, however, high. China is expected to continue to slow down, from 6.6% to 6.2%, while India will maintain its current growth of 7.4% in 2019. The Brazilian economy is expected to accelerate from 1.2% this year to 2.1% in the following year. Russian GDP, in turn, is expected to maintain its rate of growth at about 1.8%. One of the areas of concern over the last few months has been the slowdown of the Chinese economy, which is based on two key factors. Firstly, credit growth has abated, dampening the growth of domestic demand. Over the last few years, indebtedness has increased considerably (for example, in the first quarter of 2018, household debt came to about 49% of GDP, compared with an average of 29% between 2006 and 2018), which is why the authorities have sought to reign in its growth to more sustainable levels. Secondly, concerns regarding the trade war with the United States weighed on investor and stock market sentiment, accentuating the contraction in domestic demand.

Portuguese economy

According to the latest official estimates, GDP growth is expected to remain at around 2% in 2019 (2.1% in 2018), buoyed by domestic demand and exports. More specifically, private consumption is expected to remain strong, in line with the fall in the unemployment rate, which is expected to decrease from 7.0% in 2018 to 6.2% in 2019. Private investment, which in 2018 increased 3.9%, is expected to accelerate in 2019 by 6.6%. In contrast, public consumption is expected to remain relatively stable, up 0.1% in 2019, after having increased 0.7% in 2018.

On the external side, exports are expected to register an average annual growth of around 3.7% in 2018 and 2019, which corresponds to a deceleration relative to the very high pace of growth recorded in 2017. The contraction in exports in the first half of 2018 was common to the eurozone, in the context of a slowdown in global activity and trade tensions between the United States and China. On the other hand, the slowdown in exports also reflects the slower growth of tourism over the course of 2018, which is common to other countries in the south of Europe, as a result, among other reasons, of the recovery of some rival destinations.

The inflation rate, which in December 2018 came to 0.7%, is expected to increase during 2019 to 1.4%. The gains in terms of employment and salaries, in a context of relatively stable economic growth, are expected to contribute to this increase.

The main risks for this macroeconomic scenario include the effects of interest rate increases on national public debt, provoking stress in a financial system that is still grappling with a high level of non-performing loans, and the rise in oil prices, considering that Portugal is a net importing country of this raw material.

-1%

0%

1%

2%

3%

4%

5%

6%

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019

Average = 3.5%

12

Domestic GDP Growth

Source: Bloomberg

Financial Markets

The year of 2018 was marked by increased volatility and broad-based declines in global stock market indices, especially in the fourth quarter, where European political and social themes such as Brexit, the Italian budget and the opposition to the French president, in conjunction with the trade war between the United States and China added to instability in financial markets.

In the United States, after registering a new historical maximum last September, the S&P-500 index experienced its largest quarterly drop since 2011 (-14%), ending 2018 down 6.2% since the beginning of the year. In turn, the Nasdaq technological index lost 1% in total in 2018, following a correction of 17% in the last quarter of the year. In Europe, most indices registered significant annual losses, with emphasis on the German (DAX-30, -18.3%), Italian (MIB, -16.1%) and Spanish (IBEX-35, -15.0%) markets. The British FTSE-100 index lost 12.5%, penalised by the uncertainty resulting from Brexit. In turn, emerging markets corrected from their strong gains in 2017, with a drop of 16.6%, in USD, as measured by the MSCI Emerging Markets index.

Equity Markets

Source: Bloomberg. Local currency.

As in equity markets, bond performance in 2018 was characterised by increased volatility and broad-based losses, particularly in the private debt segment. In effect, the Investment Grade bond credit spreads increased about 40 bps on average, and in the High Yield segment the increase reached 199 and 143 bps in Europe and in the United States, respectively. Both the increased volatility in equity markets and the significant widening of the risk premium of Italian debt following the tug-of-war between the new Italian government and the European Commission, surrounding the state budget for 2019, contributed to this increase in risk aversion. Indeed, the differential between 10-year Italian and German yields increased 91 bps to 250 bps at the end of the year, well above the national risk premium, which remained relatively stable in 2018 at around 150 bps.

10-year Portuguese yield

Source: Bloomberg

In 2018, in foreign exchange markets, the US dollar recovered from its strong decline in the previous year, having appreciated 4.4%, as measured by the Dollar Index. The good performance of the North American economy, driven, among other factors, by the growth in employment and consumption, as well as the increase in interest rates by the Federal Reserve to the current 2.25%-2.50% range, contributed to this appreciation. On the contrary, emerging currencies registered significant declines, with emphasis on the Turkish Lira and the Argentinian Peso with losses of 28% and 51% against the US Dollar, respectively.

6.0%

4.0%

2.0%

0.0%

-2.0%

-4.0%

-6.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

-0.5%

-1.0%

-1.5%

-2.0%

-2.5%

-3.0%

Quarterly (Left Axis)

Sep-9

8

Sep-0

0

Sep-0

2

Sep-0

4

Sep-0

6

Sep-0

8

Sep-1

0

Sep-1

2

Sep-1

4

Sep-1

6

Sep-1

8

Annually (Right Axis)

115

110

105

100

95

90

85

80

75

70Dez-17 Jan-18 Feb-18 Mar-18 Apr-18 Jun-18May-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

PSI-20 IBEX-35 DAX-30

EuroStoxx-50 S&P-500

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%

-0.5%

-1.0%

-1.5%

-2.0%

Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18

PT10Y Spread PT-DE

Spread PT-ES Spread PT-IT

13

5. Business

Balance Sheet and Net Income

In 2018, the assets of the Portuguese banking system reversed its downward trajectory observed over the last few years, having increased 0.6% until the end of the third quarter of the year, according to the Portuguese Banking Association (APB). At the same time, the quality of the assets continued to improve, with a decline in the Non-Performing Loans (NPL) ratio to 11.3%, down 2 percentage points (pp) relative to the end of 2017. The decline of this ratio was more significant in the private customers segment (mortgages), whose NPL stock fell 1,237 million euros (-19.6%) over the same period. Another positive point is the average NPL coverage ratio of the sector which stood at 53.2% in September 2018, well above the 38.5% registered at the end of 2014.

In terms of profitability, in the first nine months of 2018, the profitability of the banking system increased significantly relative to the end of the previous year: the return on equity grew 5.4 pp to 8.7%, and the return on assets increased 0.5 pp to 0.8%. The positive performance of the profitability of the sector reflected, primarily, a reduction of the flow of provisions and impairments, from 31.5% to 14.2% of net operating revenue.

In this context of improvement of the quality metrics of assets and profitability, Banco Invest maintained the growth trajectory above the average of the national banking system. Net Income came to 9.0 million euros, up 55.9%, and Net Operating Income grew 2.4 million euros (9.2%) to 28.7 million euros.

Net Interest Income grew 4.0 million euros (24.2%) to 20.4 million euros, reflecting the increase of the portfolio of loans granted. The auto loans portfolio closed the year at 168.4 million euros, being responsible for most of the growth of loans granted.

Net Interest Income

Source: Banco Invest

Net fees and commissions income increased by 1.6 million euros (29.5%) to 7.0 million euros. Commissions on credit operations and service rendered, which increased 12.7% and 64.7%, respectively, contributed the most to this increase.

Net Commissions


Net Income from Financial Operations came to -690 thousand euros, having been negatively impacted by the increase in credit spreads in financial markets in 2018.

Net impairments for the year increased by a total of 552.5 thousand euros, benefitting from a reduction of 331 thousand euros relative to loans and advances to customers, with impairments of securities and other assets having increased 249 and 635 thousand euros, respectively. The total value of impairments represented 1.9% of Net Operating Revenue, which is still far below the average for the sector (14.2% in September 2018).

Accumulated impairments (book value) for General Credit (Real Estate Non-Housing) and Lending Credit declined 4.3 million euros to 22.1 million euros at the end of 2018, broadly in line with changes in the portfolio. In turn, in Auto Loans, whose portfolio was recently set up and continues to grow, impairments increased 2.5 million to 4.3 million at the end of the year. In Lending Credit, impairments reached 748 thousand euros, remaining almost unchanged in relation to the previous year. Total credit impairments thus came to 26.3 million euros at the end of 2018, representing about 8.0% of the gross balance sheet value (10.1% in December 2017).

Regarding Non-current assets held for sale, impairments fell 924.4 thousand euros to 6.5 million euros, reflecting the decrease in balance sheet exposure.

Net Assets increased 153.4 million euros (24.8%) to 772 million euros. Financial assets at amortised cost registered a net increase of 217.3 million euros (65.8%), of which 55.1 million euros correspond to the increase in loans and advances to customers.

12.99

16.43

20.42

25

20

15

10

5

0

2016 2017 2018

Mill

ion

euro

s

2.30

5.39

6.99

2016 2017 2018

7

6

5

4

3

2

1

0

Mill

ion

euro

s

14

Liabilities grew 146.9 million euros (28.7%) to 659.2 million euros. This growth resulted mainly from the increase in Resources from Customers of 130.1 million euros (28.7%) to 583.4 million euros. Growth was significant both in Corporate and Private Customers, with increases of 54.5% and 33.4%, respectively, excluding interest payable. At the end of 2018, the Private Customers segment represented about 82% of Resources from Customers.

Resources from Central Banks increased 17.5 million euros (35,1%) to 56.7 million euros. The portfolio of liquid assets eligible for funding obtained from the Eurosystem increased by 13.2% to 174.0 million euros (net of valuations and haircuts), of which 91.4 million euros were not used and could therefore be converted into liquidity.

Structure of Resources

Source: Banco Invest. Values in million euros

The transformation ratio increased from 57% in 2017 to 53.5% in 2018, which remains far below the average of the sector (89.4% in September 2018, according to APB) and which, in spite of the increase in loans granted, reflects the reduced degree of leverage of Banco Invest.

At the end of 2018, the solvency ratio of the Bank, calculated in accordance with the Bank of Portugal’s rules, stood at 18.1%. The Common Equity Tier I ratio stood at 17.3%, compared with an average of 13.5% for the sector in September 2018.

From Central Banks

2013 2014 2015 2016 2017 2018

Deposits 236.2 298.1 350.1 359.8 462.7 588.1

Securitisations 103.3 19.4 15.1 10.9 0.0 0.0

Bond issued 2.9 5.1 0.4 0.1 0.0 0.0

From other credit institutions 5.4 2.5 1.5 1.0 3.0 1.8

221.6 216.7 141.0 29.0 39.2 56.7

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

In operating terms, in 2018, the distribution of income and of the main balance sheet items was as follows:

Source: Banco Invest. The ‘Markets’ segment includes the areas: financial markets and treasury

Distributions by Operating SegmentsIndicators (Thousands of Euros)

2018 2017

Commercial Markets Total Commercial Markets Total

Net interest income 16,332 4,083 20,415 13,143 3,286 16,429Income from equity instruments - 71 71 - - -Net fees and commissions income 6,986 - 6,986 5,151 (40) 5,111Net gains / (losses) from financial operations at fair value through profit or loss - (2,151) (2,151) - 1,153 1,153Income from financial assets at fair value through other comprehensive income - 1,130 1,130 - - -Net gains / (losses) from financial assets available for sale - - - - 3,642 3,642Other operating income / (losses) 1,923 331 2,254 50 (473) (423)Net operating revenue 25,241 3,464 28,705 18,302 7,608 25,910Staff costs and general administrative costs (13,385) (4,462) (17,847) (10,909) (3,636) (14,545)Amortisations and depreciations (709) (236) (945) (698) (233) (931)Provisions and impairment 405 (983) (578) (514) (2,414) (2,928)Income before taxes 11,553 (2,217) 9,336 6,182 1,324 7,506Taxes 42 (291) (249) (1,192) (1,313) (2,505)Consolidated net income for the year 11,552 (2,519) 9,033 4,989 12 5,001

Financial assets held for trading - 58,042 58,042 - 48,307 48,307Financial assets not held for trading mandatorily at fair value through profit or loss - 16,013 16,013 - - -Financial assets at fair value through other comprehensive income - 98,762 98,762 - - -Financial assets available for sale - - - - 86,185 86,185Investments held to maturity - - - - 101,903 101,903Loans and advances to customers 312,164 - 312,164 257,045 - 257,045Debt securities - 232,878 232,878 - 71,803 71,803Resources from Central Banks - 56,680 56,680 - 39,180 39,180Resources from other credit institutions - 1,776 1,776 - 2,952 2,952Resources from customers and other loans 583,371 - 583,371 462,740 - 462,740

15

Asset Management

Own Investment Funds

The Alves Ribeiro – Plano Poupança Reforma Fund ended 2018 with a devaluation of 3.9%. The year of 2018 was marked by the return of volatility to fi nancial markets. The longevity of the business cycle, the trade war between the United States and China, the political uncertainty in the eurozone with Brexit and Italy, in conjunction with the prospects of an increase in interest rates and a withdrawal of monetary stimulus, formed the basis of an extremely diffi cult year, characterised by broad-based declines and by the increased correlation between the various classes of assets, not leaving many alternatives in terms of refuge. Since the start of activity, in November 2001, the annualised return comes to 6.7%.

In turn, the Invest Ibéria Fund ended the year with a devaluation of 20.7%. Over the same period, the PSI-20 and IBEX-35 indices lost 12.2% and 15.0%, respectively. The Iberian markets, which fell in line with their European counterparts, ended up being penalised, particularly Spain, for its exposure to Latin America and its currencies, as well as for the heavy losses of the banking sector, through contagion of the uncertainty stemming from Brexit and the upward shift of Italian yields. Since the beginning of the new Iberian strategy, in December 2016, the Fund has registered a loss of 0.5%, which compares with the simple average fall (-2.2%) of the reference indices.

Over the past year, the Own Investment Funds managed by the subsidiary Invest Gestão de Activos - SGFIM increased 11.5 million euros (22.8%) to 61.9 million euros. As in the previous year, the main contributing factor to this growth was the Alves Ribeiro - PPR Fund, with a 47.7% increase in assets under management, while the Real Estate Investment Funds remained almost unchanged at 16.6 million euros.

Own Investment Funds under management


Third Party Investment Funds

In 2018, the amount distributed of investment funds managed by third parties registered an increase of 42%, in spite of the increased volatility in fi nancial markets and the strong declines observed, particularly in the fourth quarter of the year. Of the amount placed, about 51% corresponds to equity funds, 28% to asset allocation funds and 21% to bond funds.

Distribution of Third-Party Investment Funds


During the year, the Bank expanded its offer of multi-asset funds, using them as a strategic tool for the diversifi cation of Customers’ portfolios, with low-cost, active and professional management. At the end of the year, total strategic multi-asset funds came to about 12.5% of total third-party funds.

Within the scope of third party funds, the Bank has continued to develop new thematic portfolios - Invest Trends - , which represented approximately 11.5% of total funds at the end of the year, refl ecting the very positive acceptance by Customers of thematic investment, in this fi rst complete year since the creation of the Trends.

Discretionary Management

As already mentioned, 2018 was extremely diffi cult for fi nancial markets, having been characterised by broad-based declines and by the increased correlation between the various classes of assets, not leaving many alternatives in terms of refuge. In this context, the portfolios under discretionary management registered losses in 2018. Notwithstanding the disappointment with the registered returns, in comparison with rival services and products the results were positive and, more importantly, the rigorous risk management implemented over the course of the year permitted containing the losses within the limits of the mandates of each investment profi le.

33.78

16.62

45.31

16.61

50

45

40

35

30

25

20

15

10

5

0

Mutual funds Real estate investment funds

Mill

ion

euro

s

2017 2018

Other Multi-assets Bonds Shares

28%

51%

0%

21%

16

Return and Risk

Source: Banco Invest. Median of the net returns and volatilities by risk profile,

since the start of activity (except for the Dynamic Profile, last 10 years).

Structured Products

During 2018, the Bank continued its activity of issuance of structured products for Private Customers and financial derivatives for Institutional Customers.In the Private Customers segment, in a context of increased volatility in equity markets and very low interest rates in term deposits, the amounts issued registered a remarkable growth of 39.1% in 2018. Indexed deposits remained the most used format, reflecting the conservative profile of the target customers, with the amount issued having increased 33.9% relative to 2017. Over the course of the year, 12 indexed deposits, with an annual average return of 0.8% (guaranteed capital), and 5 complex financial products, with an annual average return of 4.3% (risk up to 2.5% of the invested capital), were repaid.

ConservativeProfile

Moderate Profile

Dynamic Profile5%

4%

3%

2%

1%

0%

Ann

ual P

rofi

tabi

lity

Annual Volatility

0% 2% 4% 6% 8% 10%

Feb-2018

Invest Leisure and Tourism

Index Benchmarks: Walt Disney, Easyjet, Carnival Corp, IAG, Las Vegas Sands

Maturity: 18 months

Guaranteed Capital: 100%

Structure: Indexed Deposit

Currency: EUR

Max AGNR: 3,580%

Min AGNR: 0,130%

Mar-2018

Invest Fintech

Index Benchmarks: Banco Santander, JPM, Square, American Express, Paypal

Maturity: 18 months



Currency: EUR

Max AGNR: 3,555%

Min AGNR: 0,129%

May-2018

Invest Global

Index Benchmarks: Banco Santander, Glaxosmithkline, IBM, GM, Engie

Maturity: 18 months



Currency: EUR

Max AGNR: 3,574%

Min AGNR: 0,130%

Sep-2018

Invest PFC Nutricion

Index Benchmarks: Nestlé, Danone, DSM, Deere & Co, Compass

Maturity: 12 months

Guaranteed Capital: 97.5%

Structure: Participation

Currency: EUR

Max AGNR: 4.852%

Min AGNR: -2.5%

Nov-2018

Invest Smart Cities

Index Benchmarks: Vodafone, Vonovia, Duke Realty, Schneider Electric, Paychex

Maturity: 18 months



Currency: EUR

Max AGNR: 2.604%

Min AGNR: 0.195%

Dec-2018

Invest Premium Brands

Index Benchmarks: BMW, Hugo Boss, Lois Vuitton, Burberry, Moncler

Maturity: 17 months



Currency: EUR

Max AGNR: 2.655%

Min AGNR: 0,129%

With regards to Institutional Customers, the Bank continued to serve national banks with risk coverages for their own issues. At the end of 2018, the portfolio under management came to 73 million euros, mostly composed of equity option swaps.

Among the issues conducted, the following are noteworthy:

17

Brokerage

During 2018, online activity continued to gain relative weight in total turnover, representing about 86.5% of the volume traded in equities. In this channel, volumes traded continued to grow significantly, which enabled Banco Invest to increase its market share to about 3% in 2018, in accumulated terms.

Market shares of Banco InvestReception of orders

Shares

Online (spot market)

Source: CMVM. Values accumulated in the year.

By type of Customer, the Private Customers segment registered a 41% increase in 2018, representing about 83% of the total brokerage commissions of Customers. In the Institutional Customers segment, performance was less positive, once again due to the fall in the trading volumes of debt securities, as a result of the growing competition of trading platforms, following the entry into force of the new Markets in Financial Instruments Directive (MiFID II).

Distribution of brokerage commissions


Financial Services and Institutional Custody

According to CMVM data, as at September 2018, assets under management in other credit institutions had fallen 3.0% to 28,084 million euros year-on-year. The number of management entities of UCITS and AIF (“Alternative Investment Funds”) in operation fell from 15 to 13 and the number of UCITS and AIF in operation decreased from 161 in September 2017 to 150 in September 2018. On this date, total assets under management of UCITS and AIF came to 11,830 million euros, corresponding to a year-on-year decrease of 0.9%. The largest increases were registered in the categories of Shares (+13.5%) and Retirement Savings Funds (+10.3%), while AIFs registered a 43% decrease in their assets relative to September 2017.

Value under management in UCITS and AIF, in Portugal

Source: CMVM

2016 2017 2018

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2016 2017 2018

3.5%

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

0.0%Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

100%

80%

60%

40%

20%

0%2016 2017 2018

Individuals Institutional

13.000

12.500

12.000

11.500

11.000

10.500

10.000

Sep-14 Sep-15 Sep-16 Sep-17 Sep-18

Mill

ion

euro

s

18

In this context, Banco Invest maintained its position as a reference custodian bank for the independent fund management companies operating in the domestic market. At the end of 2018, the Bank provided custodian bank services to 37 investment funds, of 8 management companies, with a predominance of Real Estate investment funds (51%) and Venture Capital (22%). The real estate investment funds, in turn, represented 7% of the total number of funds under custody. The largest increase was registered in the assets of Self-managed fi xed capital real estate investment companies (SICAFI), which rose 99% to 169 million euros.

In 2018, total assets of institutional customers under custody at the Bank grew 167 million euros (24.5%) to 852 million euros.

Assets under Custody


Financial assets at amortised costLoans and advances to customers

According to the Bank of Portugal, the amount of consumer credit came to 7.4 billion euros in 2018, representing a year-on-year increase of 10.1%. Of this total, loans for the acquisition of used vehicles represented 2.0 billion euros (27.5%), with an annual growth of 15.3%. In this context, the Bank, under the BI Credit brand, granted credit for the purchase of used vehicles in the amount of 103.3 million euros (new production), 19.4% more than the previous year, and representing about 5.0% of the total national production in 2018. At the end of the year, the portfolio of performing loans of BI Credit reached a total of 168.4 million euros, representing about 56% of the total portfolio of performing loans to customers.

In turn, Mortgage credit came to 119.5 million euros at the end of 2018. This portfolio was mainly composed of loans, guaranteed by real estate assets, to smaller companies. In addition, the Bank holds, in most operations, personal guarantees from debtors or guarantors. Real estate guarantees are subject to periodic reassessments by certifi ed and independent Technical Appraisers, in accordance with

criteria that refl ect the evolution of the corresponding regional real estate markets, nature of properties, use and liquidity potential.

To a lesser extent, the amounts of performing loans of CEP, loans with precious metals as collateral, and of the Margin Account ended the year at 8.3 and 2.1 million euros, respectively.

Performing loans to customers


Financial assets at amortised costDebt securities

At the end of 2018, total gross performing loans came to 534.3 million euros, of which 43.7% was securitised. In effect, the Bank decided to give priority to the concession of loans to medium-sized and large companies through securitised loans, considering their greater liquidity and lower acquisition and attraction costs. Of this amount, about 37% was invested in public debt securities and the other 63% in shares of companies. The largest exposures were to the Industrial (10%), Utilities (9%) and Energy (9%) sectors.

Treasury and Capital Markets

Over the course of 2018, customer deposits increased 130.1 million euros, a signifi cant increase which allowed the production of credit granted by BI Credit to continue to be easily fi nanced. In the capital markets, the year was marked by the signifi cant increase in volatility, with broad-based declines in equity markets and an increase in the credit spreads of private debt, both in the United States and in Europe. In sovereign debt markets, the sharp rise in Italy’s risk premium is noteworthy, with its yield having risen 73 bps to 2.74%. Among core debt, 10-year Bunds ended the year at 0.24% (-19 bps, in 2018) and 10-year Treasuries, after registering a maximum of 3.24% in November, ended

900

800

700

600

500

400

300

200

100

0

Dec-16 Dec-17 Dec-18

Mill

ion

euro

s

Real Estate Mutual Venture Capital SICAFI

53

87

150

261

85

148

177

275

169

189

59

435

2.7%

Other Mortgages BI Credit Margin Accounts CEP

22,1%8,7%

25,3%

0.9%

39.7%

55.9%

0.7%

19

the year at 2.68%, as a result of the search for refuge from the turbulence in equity markets and the prospects of an economic slowdown in 2019. In a panorama of negative yields in almost all asset classes, the major exception was the USD, with an appreciation of 4.7% against the EUR.

Liquidity and Funding

Since the entry into force of the Basel III standards in 2015, Banco Invest has continued to present a Liquidity Coverage Ratio clearly above the minimum required by law. Banco Invest’s Liquidity Coverage Ratio fell from 269.9% in December 2018 to 220.4% in December 2018, a value which remains above twice the minimum legal level (100%) and of the average of the sector (185.0% in September 2018), confirming the high short-term liquidity and the large ability of the Bank to obtain funding from the European Central Bank.

Liquidity coverage ratio (LCR)


In December 2018, Banco Invest held 197.1 million euros of liquid assets eligible for refinancing operations with the European Central Bank, which ensured the Bank’s ability to obtain liquidity from that institution in the amount of 174.0 million euros. On that date, 56.7 million euros had been drawn, with 117.3 million euros of financing from the Eurosystem still available. For the Bank’s liquidity, there are also 68.6 million euros of liquid securities which may be sold, at any time, in a secondary market. These available liquid assets which correspond to 24.0% of the Bank’s total assets, and the high solvency ratio presented (18.1%), position Banco Invest as one of the most solid financial institutions in Portugal.

Eligible assets and funding from the ECB


In 20017, the amount of funding obtained from the ECB (39.2 million euros) corresponds entirely to funds obtained within the scope of the TLTRO I and II, 4-year operations at a fixed interest rate, under special conditions, launched by the ECB to promote the financing of the economy. In addition, during 2018, the Bank increased this amount to 56.7 million euros, through the normal liquidity-providing operations.

Excluding interest payable, Resources from Customers increased by 28.6% to 580.0 million euros. Growth was significant both in Corporate and Private Customers, with increases of 54.5% and 33.4%, respectively. At the end of 2018, the Private Customers segment represented about 82% of Resources from Customers (excluding interest payable).

Resources from Customers (excluding interest payable)


141.9%141.9%

126.8% 114.2%

205.7%

185.8%

283.5%269.9%

248.5%

307.7%

443.8%

220.4%239.7%

450%

400%

350%

300%

250%

200%

150%

100%

50%

0%

Dec-1

5

Feb-

16

Apr-1

6

Jun-

16

Aug-1

6

Oct-16

Dec-1

6

Feb-

17

Apr-1

7

Jun-

17

Aug-1

7

Oct-17

Dec-1

7

Feb-

18

Apr-1

8

Jun-

18

Aug-1

8

Oct-18

Dec-1

8

200

150

100

50

0

-50

-100

Mill

ion

euro

s

Eligible assets available Collateral delivered to the ECB

Funding from the ECB

2017 2018

73.1

92.9

-39.2

125.0

98.5

-56,7

288.40

52.708.44

358.30

40.50

52.13

478.11

21.31

80.53

700

600

500

400

300

200

100

02016 2017 2018

Mill

ion

euro

s

Individual Institutional Companies

20

Capital Markets

The Bank proactively manages its exposure to the various market risks: equities, bonds, interest rates, exchange rates and respective derivatives.

• Equity Risk

The Bank intervenes in equity markets through the Portfolio at Fair Value through Profi t or Loss (FVPL), according to the two main approaches or strategies.

In the fi rst approach, from a medium-term perspective, the operations undertaken are defi ned and approved by the Bank’s Investment Committee and are based on the combination of a fundamental analysis of sectors and companies. In addition to a battery of macroeconomic and sectoral indicators, share evaluation models are used, together with a comparison of expected returns on equities and bonds.

In turn, the second approach is based on a short-term perspective, with a view to achieving a pre-established objective. In 2018, the management of this strategy focused primarily on European companies of the main stock market indices with a high market capitalisation and liquidity. At the end of the year, the sectorial allocation of the trading portfolio, excluding the hedging positions of the structured products issued by the Bank, was as follows:

Sectorial allocation of the Equity Portfolio


The strategies, risk limits and the trading portfolio budget are approved before the year commences by the Bank’s Investment Committee, and the manager may intervene in the market, throughout the year, within the parameters previously defi ned.

In 2018, the annual VaR (99.9%) of the Bank’s equity portfolio oscillated between 582 and 1,796 thousand euros, closing the year at 1,766 thousand euros. The increase in the average VaR, relative to the previous year, refl ects to a large extent the signifi cant increase in volatility of equity markets during 2018.

Annual VaR of the Portfolio of Shares

Source: Banco Invest. Values in thousand eur.

• Interest Rate Risk of the Securities Portfolio

Following the increase in exposure during the fi rst half of the year, during the second half the Bank reduced the interest rate risk of the securities portfolio, in a context of very low interest rates and expected progressive normalisation of monetary policy in the eurozone. Therefore, according to the basis point value (BPV) measure, after a maximum of 155 thousand euros, registered in mid-2018, the exposure to the interest rate risk was reduced, ending the year at 149 thousand euros.

However, contrary to what happened in the United States, where the Federal Reserve increased interest rates on 4 occasions to the 2.25%-2.50% range, in the eurozone the infl ation rate remains very far from the European Central Bank’s target, which led to the maintenance of interest rates at 0%.

PVBP Interest Rate


Energy Non-cyclical consumption Insurance

Telecommunications Industrial

Mining Indices

Cyclical consumption

46.9%33.3%

2.0% 2.4% 1.9%

5.5% 5.4%2.7%

2,000

1,800

1,600

1,400

1,200

1,000

800

600

400

200

0

80

60

40

20

0

-20

-40

-60

-80

-100

Ann

ual V

aR

Dai

ly R

etur

n

dec-1

7

Jan-1

8

Feb-

18

Mar-

18

Apr-1

8

May

-18

Jun-

18Ju

l-18

Aug-1

8

Sep-

18

Oct-18

Nov-1

8

Dec-1

8

Daily return Annual VaR (IC 99.99%)

137 138

133

143

137

145

146

155

150

154 154153

149

160

155

150

145

140

135

130

125

Dec-1

7

Jan-1

8

Feb-

18

Mar-

18

Apr-1

8

May

-18

Jun-

18Ju

l-18

Aug-1

8

Sep-

18

Oct-18

Nov-1

8

Dec-1

8

Thou

sand

eur

os

21

• Bond Risk

At the end of 2018, the Bank’s bond portfolio came to 341 million euros, characterised by a high geographical and sectorial diversifi cation. The weight of sovereign debt represented approximately 33.6% of the total portfolio, of which 14.2% were allocated to Spanish government debt and 9.1% to Italian government debt. The weight of Portuguese public debt, which in 2018 returned to positive territory, fell to 5.3% of the total portfolio.

Breakdown of the Bond Portfolio


In geographic terms, European issuers represented 86.8% of the bond portfolio. The weight of the emerging issuers was 5.1% of the total, 7.2% was invested in North American issuers and 0.9% was invested in Asian issuers (Australia and Japan).

On a sectorial basis, excluding government debt, the largest exposures were to the Banking (senior debt, 14.7%), Utilities (9.0%) and Energy (8.9%) sectors.

Sectorial allocation of the Bond Portfolio


Regarding the assessment of debt security portfolio risks, the Bank makes mainly use of external ratings. At the end of the year, 81.5% of the total portfolio presented a rating equal to or above BBB, with the distribution of the credit ratings being relatively similar between the various sub-portfolios.

Distribution of the Bond Portfolio by credit rating


Trading Amortised Cost Fair Value through Reserves

55%

29%

16%

40%

35%

30%

25%

20%

15%

10%

5%

0%

Sove

reign

Senio

r Ban

ks

Utilitie

s

Energ

y

Non-cy

clica

l Con

sumpt

ion

Commun

icatio

ns

Basic

Mate

rials

Auto

Indus

trial

Struc

tured

Mor

tgag

e Ban

ks

Pharm

aceu

ticals

Cyclic

al Con

sumpt

ion

Insur

ance

Diversi

fied

Subo

rdina

te Ba

nk

Tech

nolog

y

Finan

cial

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%AAA

Rating Accumulated

AA A CCC CC C I NRBBB BB B

Distribution of the Bond Portfolio by credit rating and type of portfolio

Portofolio Rating

Amortised AccumulatedBonds Trading Cost Fair Value Total

AAA 0.00% 0.00% 0.00% 0.00% 0.00%AA 4.65% 8.46% 19.11% 10.98% 10.98%A 16.29% 0.80% 21.81% 9.39% 20.37%

BBB 60.77% 67.84% 48.62% 61.10% 81.47%BB 9.77% 20.23% 4.50% 13.98% 95.45%B 1.08% 2.67% 5.95% 3.38% 98.83%

CCC 0.00% 0.00% 0.00% 0.00% 98.83%CC 0.00% 0.00% 0.00% 0.00% 98.83%

C | NR 7.44% 0.00% 0.00% 1.17% 100.00%

Total 100.00% 100.00% 100.00% 100.00%


The Bank’s bond portfolio ended the year with an annual VaR, with a confi dence interval of 99.9%, of 14.2 million euros. During the year, VaR oscillated between 12.2 million euros and a maximum of 21.9 million euros.

22

Annual VaR of the Bond Portfoli

Source: Banco Invest. Values in thousand euros.

• Foreign Exchange Risk

Foreign exchange management is essentially centred on hedging the positions in dollars, sterling and Swiss francs. In terms of balance sheet exposure, the Bank’s foreign exchange activity remained low-level.

• Volatility Risk

The “Volatility Portfolio” is part of Banco Invest’s own portfolio investment policy aimed at managing the market risks arising from the issue of structured products and other financial derivatives for third parties. These products can take three main forms: Structured Products (term deposits issued by the Bank, with guaranteed capital and remuneration indexed to one of more financial assets), Notes (debt securities issued by Banco Invest, with or without guaranteed capital, and with remuneration indexed to one or more financial assets) and Financial Derivatives (swaps and options).

As a rule, the products issued by the Bank are managed internally, within the scope of the own portfolio. This means that the Bank assumes the risk of the remuneration to be paid for the products, such that the correct hedging of this risk is extremely important so as to preserve the estimated margin for the products. In other words, the portfolio management objective is the hedging of risk, ensuring that the expected margin of the products is not undermined.

The limits of exposure are defined in terms of the amount used to hedge the structured and derivative products issued by the Bank, in the dynamic risk management process designated as Delta Hedging. These limits are defined by the Bank’s Investment Committee and reviewed annually.

At the end of 2018, the 10-day VaR of the Portfolio, with a confidence interval of 99.9%, came to 184 thousand euros, for a Notional of 129 million euros. The delta was approximately 5.1 million euros.

Volatility Portfolio

Dec-18 Dec-17

VaR 10 days I 99,99% 184,314 272,424

Delta (5,129,660) (12.014,616)

Vega (5,290) (14,838)

Notional 129,025,827 149,349,349

Source: Banco Invest. Values in euros.

6. Transactions with Directors

The Legal Framework of Credit Institutions and Financial Companies forbids, as a general rule, the Banks from granting credit, under any form, including the provision of guarantees, whether directly or indirectly, to Related Parties.

On the contrary, the foregoing provisions are not applicable to transactions of a social nature or purpose or arising from personnel policy, as well as loans granted as a result of the use of credit cards associated to the deposit account, under similar conditions to those practised with other customers of analogous profile and risk.

The Bank granted loans, under the personnel policy, to two directors.

The members of the Board of Directors, executive offices, and other employees, consultants and authorised representatives of the Bank cannot intervene in the assessment and granting of loan operations in which they have a direct or indirect interest themselves, their spouses or unmarried partners, relatives by marriage related by consanguinity or by affinity in the first degree, or companies or other collective entities over which they have direct or indirect control.

Principles relative to transactions with related parties

The Bank applies the following rules in transactions with related parties:

a) The operations in question are always carried out under market conditions;

(b) The internal control procedures established by the Bank with respect to the compliance and risk management functions are fully observed, in particular these departments will closely monitor with particular caution this type of operations, issuing a written opinion on the same, when justified; and

(c) The prior opinion of the Audit Board, established as a prerequisite for the subsequent carrying out of the operation or this body may simply take note of the terms and conditions of the operation, if said operation is not material, i.e. it is of low value.

25,000

20,000

15,000

10,000

5,000

0

Dec-1

7

Jan-1

8

Feb-

18

Mar-

18

Apr-18

May

-18

Jun-1

8Jul

-18

Aug-1

8

Sep-

18

Oct-18

Nov-1

8

Dec-1

8

1,500

1,000

500

0

-500

-1,000

-1,500

-2,000

Daily Return

Dai

ly R

etur

n

Annual VaR (IC 99.99%)

Ann

ual V

aR

23

7. Risk Control

Risk control is assumed at the highest levels at Banco Invest, with all risk limits – market, credit, liquidity and operational – defined and approved by the Bank’s Board of Directors. Furthermore, there are four functional bodies - the Investment Committee, the Credit Division, the Accounting and Control Division and the Internal Audit Division - that work together to control approval processes, procedures and information circuits established in advance, ensuring compliance with the limits set by the Board of Directors.

Autonomously, according to the requirements set out in Notice 5/2008 of the Bank of Portugal, there is still the risk control function, regarding which the person responsible reports directly to the Board of Directors, focusing its activity, among others, on the elaboration of audits regarding the compliance of the risk models used by the Bank in different business areas and the verification of the adequacy of the same models in the valuation and mitigation of risks, according to the risk policies issued by the Administration.

The risk control system developed at Banco Invest allows monitoring and continually assessing the risk of each functional area through risk matrices that ensure the timely prevention of unwanted situations for the Bank and the immediate adoption of corrective measures, if any unwanted situations are detected at a later stage.

The aim of the implemented system is to cover all Bank products, activities, processes and systems in order to permit the identification and prioritisation of all the material risks and the documentation of the associated assessment, follow-up and control processes.

The Risk Management process also involves the systematic control of the dimension and composition of the assets and liabilities of the Bank, which can change according to the activities of the customers and market conditions.

Market Risk

Market risk control is designed to assess and monitor the potential devaluation of the Bank’s assets, and the consequent reduction of profits, caused by an adverse movement of the market values of financial instruments, interest rates and/or exchange rates.

The Bank’s securities portfolios are segmented according to investment objectives and their accounting treatment. The Bank calculates and monitors the market risk of all the portfolios it holds, defining risk limits per portfolio, considering the potential impacts of each one, both on results and on shareholders’ equity.

Management rules subject each portfolio to restrictions in terms of dimension, composition, assets and risk levels.

Risk limits are defined for credit exposure - concentration by country, activity segment and rating - as well as in terms of market and liquidity.

For assessment and quantification of market risk the bank uses the following indicators:

– Value-at-Risk, estimating for each portfolio, with a confidence interval of 99.9%, the daily maximum potential loss stemming from adverse variations to the underlying assets. Value-at-Risk takes into account not only the volatility of financial assets but also the correlation between them and the distribution of return rates of each one. The risk assumed by each trader, by type of financial asset and by the Bank’s global portfolio is calculated daily;

– Present Value of Basis Point (PVBP) calculation, which determines potential losses in the Bank’s results caused by a one-basis point change in interest rates.

Annual VaR of the Total Portfolio subject to Market Risk


In addition, the Bank resorts to the periodic undertaking of stress tests and reverse stress tests, which involve the simulation of adverse historical or hypothetical scenarios for each portfolio and a sensitivity analysis based on changes in various factors, to measure the impact on assets, results and solvency. The stress tests are also an integral part of the annual assessment of the Internal Capital Adequacy Assessment Process (ICAAP), with a view to assessing the suitability of the same to the development of economic activity.

Overall trading risks are kept in check using diversification strategies by asset class, bearing in mind the correlation between several markets and assets.

Monthly VaR limits and concentration limits by market, by asset, by sector and by rating notation, proposed by the Investment Committee and approved by the Board of Directors, are monitored daily by the Accounting and Control Division. The Investment Committee also monitors each portfolio’s mark to market and its Value-at-Risk on a daily basis.

25

20

15

10

5

0

Mill

ion

euro

s

Annual VaR (IC 99,99%)

Dec-1

7

Jan-1

8

Feb-

18

Mar-

18

Apr-18

May

-18

Jun-1

8Jul

-18

Aug-1

8

Sep-

18

Oct-18

Nov-1

8

Dec-1

8

24

Credit Risk

Credit risk control involves assessing the degree of uncertainty and monitoring the possibility of a loss caused by the customer/counterparty’s breach of its contractual obligations towards the Bank. Credit risk assumes a special purpose in banking activity, not only due to its materiality but because of its connection with other risks as well.

In the loan concession activity, aimed at guaranteeing the correct determination of the risk profile of operations, the analysis and decision process passes through the autonomous opinions of the risk analysis area, the Credit Division and the Bank´s Board of Directors, being supported by a battery of external and internal information elements considered relevant to the substantiated decision of any loan proposal.

The consistency of the collateral is determined by systematic assessments conducted by duly certified external technicians, subject to regular periodic reassessments. The integrity of the said collateral is safeguarded by insurance policies, covering common risks, whose sufficiency in terms of capital and validity is permanently monitored by the Bank.

The impairments of the loan portfolio are calculated monthly, based on a collective analysis of the loan portfolio, and on the individual analysis of the larger loans and those that are in default. The impairment in the loans subject to collective analysis is calculated based on a proprietary model, duly validated by the external auditors, which estimates the probabilities of default and the amount of expected losses, based on information relative to the portfolio’s past behaviour.

Effort tests, in accordance with the Bank of Portugal’s rules, are also conducted periodically on the loan portfolio, with the aim of analysing the impact on the Bank’s accounts of the adverse movement of some variables considered as sensitive, namely the default rate, interest rate and real estate market prices.

The credit risk of the securities portfolio is calculated and monitored based on the Credit Value-at-Risk methodology. Through this model, the maximum expected loss is calculated, with a certain confidence level, resulting from the occurrence of defaults in the portfolio. The maximum loss is calculated based on the historical probabilities of default and recovery rate (loss given default) obtained from the main rating agencies in securities with a similar credit risk rating to those held in portfolio.

Within the scope of the concentration of credit risk, overall analyses of the portfolio (securitised credit and non-securitised credit) are undertaken, measuring exposure by sector of activity and the greatest individual exposures.

Liquidity Risk

Liquidity risk control is designed to evaluate and monitor the possibility of a loss stemming from the Bank’s inability, at a given time, to finance its assets in order to meet its financial commitments on the scheduled dates.

Liquidity risk is evaluated on the basis of the assets and liability tables that allow the Bank’s cash flow to be monitored and its cash requirements over a forecasting period of five years to be determined. Mismatch analyses and stress tests are undertaken to determine safe liquidity levels to cope with unexpected events.

To finance its short-term business and to ensure liquidity management with adequate safety margins, the Bank has interbank money market lines and securities contango lines negotiated with several banks, in addition to its growing customer fund attraction capacity.

Operating Risk

The aim of controlling operating risk is to prevent possible failures in the Bank’s internal control system that may give rise to fraud or unauthorised transactions, as well as avoid the possibility of the results of the Bank being negatively affected by the occurrence of an event that is not inherent to its activity.

Banco Invest’s business is subject to several prevention and control mechanisms to mitigate the risk of the occurrence of losses of an operational nature, among which the following are worthy of mention:

• Code of Conduct and Internal Regulations of the Bank;• Procedures Manuals;• Physical and logical access control;• Reports of exceptions;• Contingency planning.

The Bank has internal procedures that define the scope of responsibility of each area involved in the daily operation of the institution, the circuits of information and deadlines to be met, mitigating the possibility of the occurrence of operating losses.

Internal audits are carried out periodically to evaluate the control systems implemented, so as to guarantee compliance with the Procedures Manuals and reduce the likelihood of mistakes in recording and accounting the various transactions.

On a daily basis, the Planning and Control Division assesses the liabilities of each functional area towards its counterparties, compliance with established limits and the levels of authorisation employed in approving transactions.

25

8. Future Prospects

The year 2019 will focus on the improvement of profitability levels, efficiency and business quality, always maintaining the proximity with customers and compliance with all the regulatory obligations.

9. Subsequent events

To date no relevant fact, considered material for the activity of the Bank, has occurred which has not been disclosed in the notes to the financial statements.

10. Net Income and its Appropriation

The year’s accounts reflect the business carried on by Banco Invest within the established guidelines and its effects on the balance sheet and on results. The financial statements have been externally audited by a prestigious firm of auditors which has issued an opinion thereon and is presented hereunder.

Individual net income came to 13,745,534.28 euros. It is proposed that this amount be appropriated as follows:

Legal Reserve ..................................... 1,374,553.43 EurosFree Reserves ................................... 12,370,980.85 Euros

Lisbon, 24 April 2019

The Board of Directors

11. Acknowledgements

The Board of Directors of Banco Invest would like to take this opportunity to extend its appreciation and gratitude:

• To the Bank of Portugal and the Securities Market Commission for their attention given to the Bank;

• To the Board of the General Meeting, and its Chairman in particular, for the willingness shown in the performance of such important duties;

• To the Audit Board and the Firm of Statutory Auditors, for their cooperation and support in the management of the Bank’s business;

• To those employees who, with a sense of responsibility and a spirit of dedication, have worked hard to achieve the established goals with full regard for the ethical, human and corporate values assumed and shared within the company.

.

26

4. Demonstrações Financeiras

4. Financial Statements

28

Consolidated Balance Sheet as at 31 December 2018

(Amounts in euros)

ASSETS Notes 31 December 31 December 2018 2017 (*)

Cash and deposits at Central Banks 4 4,233,345 9,144,414Demand deposits at credit institutions 5 11,713,894 6,424,253Financial assets at amortised cost Loans and advances to credit institutions 6 2,535,337 1,400,055 Loans and advances to customers 7 312,163,551 257,045,841 Debt securities 8 232,878,450 71,803,356Financial assets at fair value through profit or loss Financial assets held for trading 58,042,047 48,307,443 Financial assets not held for trading mandatorily at fair value through 9 profit or loss 16,012,916 -Financial assets at fair value through other comprehensive income 10 98,761,930 -Financial assets available for sale 11 - 79,692,315Investment held to maturity 12 - 101,902,862Investments in subsidiaries, associated companies and joint ventures 12,500 12,500Non-current assets held for sale 13 14,984,133 19,934,793Investment properties 14 4,121,100 4,013,100Other tangible assets 15 2,277,253 2,381,835Intangible assets 16 305,096 318,732Current tax assets 17 677,655 -Deferred tax assets 7,378,470 7,148,582Other assets 18 5,979,078 9,113,010

Total Assets 772,076,755 618,643,091

LIABILITIESFinancial liabilities at amortised cost Resources from Central Banks 19 56,680,000 39,180,000 Resources from credit institutions 20 1,775,690 2,951,525 Resources from customers and other loans 21 583,371,296 453,271,575 Non-subordinated debt securities issued 22 214,620 -Financial liabilities at fair value through profit or loss Financial liabilities held for trading 23 1,010,716 1,838,728Provisions 24 24,723 -Current tax liabilities

17 72,345 151,018

Deferred tax liabilities 241,127 585,097Other liabilities 25 15,789,877 14,273,371

Total Liabilities 659,180,394 512,251,314

SHAREHOLDERS’ EQUITYShare capital 26 - 59,500,000Revaluation reserves 27 (181,417) 1,647,520Other reserves and retained earnings 43,523,229 38,483,405Net income for the year attributable to the Bank’s shareholders 9,033,075 5,793,594

Total shareholders’ equity attributable to the Bank’s shareholders 111,874,887 105,424,519Non-controlling interests 1,021,474 967,258

Total Shareholders’ Equity 112,896,361 106,391,777

Total Liabilities and Shareholders’ Equity 772,076,755 618,643,091

(*) The balances relative to 31 December 2017, correspond to the statutory accounts on that date. These balances are presented exclusively for comparative purposes, not having been restated following the adoption of IFRS 9, with reference to 1 January 2018, as permitted in IFRS 9 (Note 46).

29

Consolidated income statement for the financial year ended 31 December 2018

(Amounts in euros)

Notes 2018 2017 (*)

Interest and similar income 30 27,332,795 21,321,637

Interest and similar charges 31 (6,917,176) (4,888,154)

Net interest income 20,415,619 16,433,483

Income from equity instruments 32 70,917 -

Net fees and commissions income 33 6,986,101 5,393,738

Gains / (losses) in financial operations at fair value through profit or loss 34 (2,151,212) 1,152,508

Net gains / (losses) from foreign exchange 35 331,092 (472,573)

Income from financial assets at fair value through other comprehensive income 36 1,130,145 -

Net gains / (losses) from financial assets available for sale 37 - 3,641,942

Income from sales of other assets 38 1,080,775 (27,968)

Operating income / (losses) 39 842,115 162,359

Total operating revenue 8,289,933 9,850,006

Staff costs 40 (10,153,804) (8,386,236)

Other administrative costs 41 (7,692,853) (6,285,362)

Depreciations and amortisations 15 and 16 (945,379) (930,497)

Total operating costs (18,792,036) (15,602,095)

Operating income before provisions and impairments 9,913,516 10,681,394

Impairment pf financial assets at amortised costs 331,495 (514,224)

Impairment of financial assets at fair value through other comprehensive income 24 (173,909) (668,928)

Impairment of other assets (710,133) (1,668,874)

Other provisions (24,723) -

Income before taxes 9,336,246 7,829,368

Taxes

Current 17

(291,170) (1,367,862)

Deferred 42,215 (613,302)

Income after taxes 9,087,291 5,848,204

Net income for the year attributable to:

Bank’s shareholders 9,033,075 5,793,594

Non-controlling interests 54,216 54,610

Net income for the year 9,087,291 5,848,204

(*) The balances relative to 31 December 2017, correspond to the statutory accounts on that date. These balances are presented exclusively for comparative purposes, not having been restated following the adoption of IFRS 9, with reference to 1 January 2018, as permitted in IFRS 9 (Note 46).

30

Consolidated comprehensive income statement for the financial year ended

on 31 December 2018

(Amounts in euros)

2018 2017

Consolidated net income before non-controlling interests 9.087.291 5.848.204

Items that may be reclassifed for the income statement

Revaluation reserves of financial assets available for sale:

Revaluation of financial assets available for sale - 926,917

Impact on taxes - (227,094)

Transfer to profit or loss due to impairment - 668,928

Impact on taxes - (163,887)

Transfer to profit or loss due to disposal - (3,641,942)

Impact on taxes - 892,276

Revaluation reserves of financial assets at fair value through other comprehensive income:

Revaluation of financial assets at fair value through other comprehensive income (1,109,629) -

Impact on taxes 318,324 -

Transfer to profit or loss due to impairment 173,909 -

Impact on taxes (42,608) -

Transfer to profit or loss due to disposal (1,130,145) -

Impact on taxes 276,886 -

Result not recognised in the income statement (1,513,263) (1,544,802)

Consolidated comprehensive income before non-controlling interests 7,574,028 4,303,402

Non-controlling interests (54,216) (54,703)

Consolidated comprehensive income 7,519,812 4,248,699

The Notes are an integral part of the comprehensive income statement for the financial year ended on 31 December 2018.

31

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32

Consolidated cash flow statement for the financial year ended

on 31 December 2018

(Amounts in euros)

2018 2017

CASH FLOW FROM OPERATING ACTIVITIES: Income from interest and commissions 35,743,760 25,582,598 Payment of interest and commissions (11,749,659) (10,068,218) Payments to staff and suppliers (17,410,356) (12,852,084) Income tax (payable)/receivable (1,047,499) 132,531 Other payments related to the operating activity 606,187 (293,709)

Operating income before changes in operating assets 6,142,433 2,501,118

(Increases) / reductions in operating assets: Financial assets at fair value through profit or loss (28,558,260) - Financial assets held for trading - (10,804,236) Financial assets at fair value through other comprehensive income (14,508,026) - Financial assets available for sale - 16,632,835 Deposits at credit institutions (1,000,000) 4,000,068 Financial assets at amortised cost (109,750,255) - Loans and advances to customers - (96,273,197) Investments held to maturity 681,035 (15,267,570) Non-current assets held for sale 5,621,458 (5,171,214) Other assets 3,321,558 (4,874,633)

(144,192,490) (111,757,947)

Increases / (reductions) in operating liabilities: Resources at central banks 17,500,000 10,180,000 Financial liabilities for trading - - Resources from other credit institutions (1,175,835) 1,962,613 Resources from customers 129,011,675 98,171,062 Liabilities represented by securities 213,524 (99,376) Other liabilities (5,439,268) 2,055,621

140,110,096 112,269,920

Cash net of operating activities 2.060.039 3.013.091

CASH FLOW FROM INVESTING ACTIVITIES:

Purchase and sale of tangible and intangible assets (841,467) (169,817)

Dividends from financial holdings - -

Cash net of investment activities (841,467) (169,817)

CASH FLOW FROM FINANCING ACTIVITIES:

Distribution of reserves to shareholders (Note 26) (840,000) (840,000)

Cash net of financing activities (840,000) (840,000)

Net increase / (decrease) in cash and equivalents 378,572 2,003,274

Cash and equivalents at the start of the period 15,568,667 13,565,393

Cash and equivalents at the end of the period 15,947,239 15,568,667

378,572 2,003,274

The Notes are an integral part of the cash flow statement for the financial year ended on 31 December 2018

5. Notes to the Financial Statem

34

1. INTRODUCTORY NOTE

Banco Invest, S.A. (Group, Bank or Banco Invest) is a limited liability company with its registered office in Lisbon. The Bank was incorporated on 14 February 1997 under the name Banco Alves Ribeiro, S.A., and started trading on 11 March 1997. The incorporation of the Bank was authorised by the Bank of Portugal on 4 December 1996. The Bank changed its name to the current one on 16 September 2005.

The corporate object of the Bank is to undertake financial transactions and to provide related services with such latitude as the law allows. It is primarily engaged in the asset management, capital markets, and loan and development capital business.

The Bank has six branches, located in Lisbon, Oporto, Leiria and Braga.

The Bank holds all the share capital of Invest Gestão de Activos – Sociedade Gestora de Fundos de Investimento Mobiliário, S.A. (Invest Gestão de Activos). This company was incorporated on 11 February 1998 and its corporate object is the management of mutual funds on behalf of the participants.

The consolidated financial statements as at 31 December 2018 were approved by the Board of Directors on 26 March 2019.

The financial statements of the Bank as at 31 December 2018 are pending approval from the General Meeting. However, the Board of Directors believes that these financial statements will be approved without significant changes.

2. ACCOUNTING POLICIES

2.1. Basis of presentation

The financial statements of the Bank were prepared on a going concern basis. The consolidated financial statements as at 31 December 2018 were prepared based on the International Financial Reporting Standards (IFRS) as adopted in the European Union, under Regulation (EC) 1606/2002 of the European Parliament and of the Council, of 19 July, transposed into Portuguese law by Decree-Law 35/2005 of 17 February.

As at 31 January 2018 the Group adopted IFRS 9 – Financial Instruments which replaces IAS 39 - Financial Instruments: Recognition and measurement and establishes new rules for the recognition of financial instruments presenting significant changes namely at the level of classification and measurement, including impairment requirements for financial assets. On the same date the Group also adopted IFRS 15 - Revenue recognition.

2.2. Consolidation principles

The consolidated financial statements include the accounts of Banco Invest and the entities it directly or indirectly controls (Note 3), including special purpose entities.

Under the requirements of IFRS 10, the Bank considers that it exercises control when it is exposed or holds rights to the variable returns generated by a specific entity (designated as a “subsidiary”) and has the ability, through its power over and the ability to direct the relevant activities of the entity, to affect the amount of its returns (de facto power). The Bank includes in its perimeter of consolidation the special purpose entities created within the scope of the securitisation operations referred to above, since control is exercised over these entities.

The consolidation of the accounts of subsidiaries employed the full integration method, with significant transactions and balances between the companies in the consolidation being eliminated. In addition, consolidation adjustments have been made where applicable to ensure the consistent application of the Group’s accounting criteria.

Third party shareholdings in subsidiaries are recorded in the “Non-controlling interests” item under shareholders’ equity.

The consolidated profit is the aggregation of the net income of Banco Invest and its subsidiaries, in proportion to the effective shareholding, after consolidation adjustments, that is, the elimination of dividends received and gains or losses arising from transactions between companies included in the consolidation..

35

2.3. Comparability of information

The Group adopted the IFRS and interpretations of mandatory application for the financial years beginning on or after 1 January 2018. The accounting policies were applied in the Group, and are consistent with those used in the preparation of the financial statements of the previous year, except for the changes resulting from the adoption of the following standards with reference to 1 January 2018: IFRS 9 – Financial instruments and IFRS 15 – Revenue recognition. The comparative financial years were restated. The differences in the book values of the financial assets and liabilities resulting from the adoption of IFRS 9 are recognised in retained earnings and reserves on 1 January 2018. In this context, the information presented for 2017 does not reflect the requirements of IFRS 9 and is therefore not comparable with the information presented for 2018 according to this standard.

The requirements presented by IFRS 9 are generally applied retrospectively by adjusting the opening balance sheet to the initial date of application (1 January 2018). The impacts arising from the implementation of IFRS 9 with reference to 1 January 2018 are detailed in Note 46. The financial instruments as at 31 December 2017 were recognised in accordance with IAS 39. There were no significant impacts on the individual financial statements related to the adoption of IFRS 15.

The balances included in the financial statements for 31 December 2017 are presented exclusively for comparative purposes.

The financial statements were prepared under the historical cost convention, as modified by the application of fair value for derivative financial instruments, financial assets and liabilities recognised at fair value through profit or loss and assets at fair value through other comprehensive income.

2.4. Conversion of foreign currency balances and transactions

The Group’s accounts are prepared in accordance with the currency used in the primary economic environment in which it operates (termed “operating currency”), namely the Euro. Transactions in foreign currency are recorded based on exchange rates on the date of the transaction. Assets and liabilities expressed in foreign currency are converted into euros at the exchange rate displayed on each balance sheet date.

Exchange rate differences arising from currency conversion are shown in the profit or loss for the year, except where they arise from non-monetary financial instruments, such as equities, classified at fair value through other comprehensive income, which are recorded under shareholders’ equity until they are sold.

2.5. Financial instruments

a) Financial Assets

1. Classification, initial recognition and subsequent measurement

At initial recognition, financial assets are classified into one of the following categories:

i) Financial assets at amortised cost; ii) Financial assets at fair value through other comprehensive income; and iii) Financial assets at fair value through profit or loss.

Since 1 January 2018, the classification is made taking into consideration the following aspects: - the business model defined for the management of the financial asset; and - the characteristics of the contractual cash flows of the financial assets.

Business Model Evaluation

With reference to 1 January 2018, the Group carried out an evaluation of the business model in which the financial instruments is held at the portfolio level, since this approach reflects the best way in which assets are managed and how that information is made available to the management bodies.

36

Financial assets held for trading and financial assets designated at fair value through profit or loss are measured at fair value through profit or loss because they are not held either for the collection of contractual cash flows nor for the collection of contractual cash flows and sale of these financial assets.

Evaluation of the contractual cash flows

For the purposes of this assessment:

- “principal” is defined as the fair value of the financial asset at initial recognition; - “interest” is defined as the counterparty for the time value of money, the credit risk associated with the amount

owed over a given period of time and for other risks and costs associated with the activity (e.g.: liquidity risk and administrative costs), and as a profit margin (“spread”).

In the evaluation of the financial instruments in which contractual cash flows refer exclusively to the receipt of principal and interest, the Bank considered the original contractual terms of the instrument. This evaluation included the analysis of the existence of situations in which the contractual terms can modify the periodicity and the amount of the cash flows so that theu don not fulfil the SPPI - Solely Payments of Principal and Interest condition. In the evaluation process, the Bank took into consideration:

- contingent assets that may change the periodicity and amount of the cash flows; - characteristics that result in leverage; - terms of prepayment and extension of maturity; - terms that may limit the right of the Bank to claim cash flows in relation to specific assets (e.g. contracts with

terms which prevent access to assets in case of default - “non-recourse asset”); and - characteristics that may change the time value of money.

In addition, a prepayment is consistent with the SPPI criterion, if: - the financial asset is acquired or originated with a premium or discount in relation to the contractual nominal

value; - the prepayment represents substantially the nominal amount of the contract plus accrued contractual interest,

but not paid (may include reasonable compensation for prepayment); and - the prepaid value is insignificant at initial recognition..

i) Financial assets at amortised cost;

A financial asset must be measured at amortised cost if both of the following conditions are met: - the financial asset is held within a business model whose primary objective is to hold financial assets to collect

contractual cash flows; and - The contractual cash flows arise on specific dates and correspond to solely payments of principal and interest on

the principal amount outstanding (SPPI).

This category includes: - Loans and advances to credit institutions; - Loans and advances to customers; - Debt securities - managed based on a business model whose objective is the receipt of contractual cash flows

(government bonds, bonds issued by companies and commercial paper).

Financial assets at amortised cost are initially recognised at fair value, plus transaction costs directly attributable to the transaction, and are subsequently measured at amortised cost. In addition, they are subject, from their initial recognition, to the measurement of impairment losses.

ii) Financial assets at fair value through other comprehensive income; or

A financial asset must be measured at fair value through other comprehensive income if both of the following conditions are met:

- The financial asset is held within a business model whose objective is to both collect contractual cash flows and sell financial assets; and

- The contractual cash flows occur on specified dates and correspond to solely payments of principal and interest on the principal amount outstanding (SPPI).

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Financial assets at fair value through other comprehensive income are initially recorded at fair value, plus transaction costs, and are subsequently measured at fair value. Changes in the fair value of these assets are recorded against other comprehensive income and, at the time of their disposal, the respective gains or losses accumulated in other comprehensive income are reclassified to a specific income statement. In addition, they are subject, from their initial recognition, to the measurement of impairment losses.

In addition, in the initial recognition of an equity instrument that is not held for trading, nor a contingent retribution is recognised by an acquirer in a business combination which applies IFRS 3, the Group may irrevocably choose to classify it in the category of “Financial assets at fair value through other comprehensive income” (FVOCI). This option is exercised on a case-by-case basis, investment by investment and is only available for financial instruments that comply with the definition of equity instruments provided for in IAS 32 and cannot be used for financial instruments whose classification as an equity instrument under the scope of the issuer is made un der the exceptions provided for in paragraphs 16A to 16D of IAS 32.

Equity instruments at fair value through other comprehensive income are initially recorded at fair value, plus transaction costs, and are subsequently measured at fair value. Changes in the fair value of these financial assets are recorded against other comprehensive income. Dividends are recognised in profit or loss when the right to receive them is attributed.

Impairment is not recognised for equity instruments at fair value through other comprehensive income, and the respective accumulated gains or losses recorded in fair value changes are transferred to retained earnings at the time of their derecognition.

iii) Financial assets at fair value through profit or loss.

A financial asset must be measured through profit or loss, unless measured at amortised cost or at fair value through other comprehensive income.

The Bank classified financial assets at fair value through profit or loss in the following captions:

- Financial assets held for trading

Financial assets classified under this caption are acquired with the purpose of short-term selling; at initial recognition they are part of a portfolio of identified financial instruments and for which there is evidence of a recent pattern of short-term profit taking; or are derivatives (except for hedging derivatives).

- Financial assets not held for trading mandatorily at fair value through profit or loss

This item classifies debt instruments whose contractual cash flows do not correspond only to repayments of principal and interest on the principal amount outstanding (SPPI).

Until 1 January 2018, financial assets were recorded on the date of acquisition at their fair value, plus costs directly attributable to the transaction. At initial recognition, these assets were classified in one of the following categories, established in IAS 39 - Financial instruments: recognition and measurement:

i) Financial assets at fair value through profit or loss

This category includes financial assets held for trading, which basically include securities acquired in order to make a profit from short term price fluctuations. This category also includes derivatives, excluding those which meet the hedge accounting requirements.

Financial assets classified in this category were recorded at fair value, and gains and losses arising from their subsequent valuation are shown in profit or loss for the year in the item “Result of assets and liabilities assessed at fair value through profit or loss”. Interest is shown in the appropriate items of “Interest and similar earnings”.

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ii) Loans and advances to customers and other accounts receivable

These are financial assets with fixed or determinable payments, not quoted on an asset market and not included in any other financial asset category. This category includes loans and advances to customers, receivables from other credit institutions and receivables through provision of services or sale of goods, which are recorded in “Other assets”.

In addition, this item includes securities from the items “Financial assets held for trading” and “Financial assets available for sale” that were reclassified in 2008, following the application of the Amendment to IAS 39 (Note 44). These assets were transferred by their fair value, calculated with reference to 1 July 2008.

At initial recognition, these assets were recorded at fair value, less any commissions included in the effective rate, and plus all incremental costs directly attributable to the transaction. These assets were subsequently recognised on the balance sheet at amortised cost, less any impairment losses.

The derecognition of these assets in the balance sheet occurs in the following situations: (i) the contractual rights of the Bank have expired, or (ii) the Bank transferred substantially all te associated risks and benefits.

iii) Financial assets available for sale

This category includes variable and fixed yield securities not classified as assets at fair value through profit or loss, including stable financial shareholdings, as well as other financial instruments recorded here and which are not accommodated in the other categories established in IAS Standard 39, described above.

Financial assets available for sale were measured at fair value, apart from equity instruments not quoted on an asset market, whose fair value cannot be measured reliably, which remain carried at cost. Gains or losses from revaluation were recorded directly in shareholders’ equity, under “Fair value reserves”. Once sold, or if impairment is determined, the accumulated changes in fair value were transferred to income or cost for the year.

Dividends from equity instruments classified in this category were carried as income in the profit and loss account when the Bank’s right of receipt was established.

iv) Investments held to maturity

Investments held to maturity are fixed yield investments whose interest rate is known when it is issued and whose repayment date is established, with the Bank being able and intending to keep them until reimbursement.

When first recognised, these assets were carried at acquisition cost, less any commissions included in the effective rate, and plus all incremental costs directly attributable to the transaction. These assets were subsequently recognised on the balance sheet at amortised cost, less any impairment losses.

Any sale of assets that were classified as held to maturity implied the change of classification of the entire class, except for sales that are isolated, non-recurrent and take place under circumstances beyond the entity’s control that could not have been reasonably anticipated.

An entity could not classify, once again, any financial assets as held to maturity if the entity had, during the current financial year or during the two preceding financial years, sold or reclassified more than an insignificant amount of held-to-maturity instruments before maturity, other than sales or reclassifications that:

- were so close to the maturity or early repayment date that changes in interest rates would not have a significant impact on the financial asset’s fair value;

- occurred after the entity had collected substantially all of the financial asset’s nominal amount; or - were attributable to an isolated event that is beyond the entity’s control, is non-recurring and could not have

been reasonably anticipated by the entity.

This category includes a set of financial assets from the items “Financial assets held for trading” and “Financial assets available for sale” that were reclassified following the application of the Amendment to IAS 39 (Note 44). These assets were recorded at fair value with reference to 1 July 2008 and, subsequently, were valued at amortised cost, minus possible impairment losses.

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Fair value

Even before 1 January 2018, as mentioned above, financial assets in the categories of “Financial assets held for trading” and “Financial assets available for sale” were carried at fair value, in accordance with the principles established by IAS 13 - Fair Value.

The fair value of a financial instrument corresponds to the amount by which a financial asset or liability can be sold or settled between independent, informed parties interested in concluding the transaction under normal market conditions.

The fair value of financial instruments is determined according to the following criteria: - Closing price on the balance sheet date, for instruments transacted on asset markets; - Prices supplied by independent entities (bid prices), divulged through the financial information media, namely

Bloomberg, including market prices available in recent transactions and the Bloomberg Generic index; - Prices generated by internal valuation methods, which take market information that would be used to set a price for

the financial instrument into account, reflecting market interest rates and volatility, as well as the liquidity and credit risk associated with the instrument.

2. Reclassification between categories of financial assets

Financial assets should be reclassified to other categories only if the business model used in their management has changed. In this case, all affected financial assets are reclassified. Reclassification must be applied prospectively as of the reclassification date, and any gains, losses (including related to impairment) or interest previously recognised should not be restated.

Reclassifications of investments in equity instruments measured at fair value through other comprehensive income, or financial instruments designated at fair value through profit or loss, are not permitted.

3. Impairment losses

Under IFRS 9, the impairment model based on incurred losses is replaced by a model based on expected losses.

The Bank recognises impairment for expected credit losses (“ECLs”) for the following financial instruments:

- Financial assets at amortised cost

Impairment losses on financial assets at amortised cost reduce the balance sheet value of these financial assets against the caption “Impairment of financial assets at amortised cost” - in the income statement.

- Debt instruments at fair value through other comprehensive income

Impairment losses for debt instruments at fair value through other comprehensive income are recognised in the income statement under “Impairment of financial assets at fair value through other comprehensive income”, against other comprehensive income (do not reduce the balance sheet of these financial assets).

- Financial guarantees

Impairment losses associated to financial guarantees are recognised in liabilities, under the caption “Provisions for guarantees and other commitments”, against the caption “Other provisions” (in the income statement).

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4. Classification of financial instruments by stages

Stage 1 Stage 2 Stage 3

Classification Initial Significant increase of credit risk Impairment criteria recognition since initial recognition situation

Impairment Expected credit “Lifetime” expected credit losses losses losses for 12 months

Significant increase Objective evidence of in credit risk? loss?

The Bank determines the expected credit losses of each operation according to the deterioration of credit risk since its initial recognition. For this purpose, the operations are classified into one of the following three stages:

- Stage 1: the operations in which there is no significant increase in credit risk since its initial recognition are classified in this stage. Impairment losses associated to operations classified at this stage correspond to expected credit losses resulting from a default event that may occur within 12 months after the date of calculation.

- Stage 2: the operations in which there is no significant increase in credit risk since its initial recognition but are not impaired are classified in this stage. Impairment losses associated with operations at this stage correspond to the expected credit losses resulting from all the potential loss events until maturity, applied to the projection of the contractual cash flows - lifetime expected credit losses.

The significant increase in credit risk is evaluated through qualitative and quantitative signs. The assessment of the significant increase in credit risk also involves the comparison of the level of current risk of an exposure with the level of existing risk at origination.

- Stage 3: the impaired operations are classified at this stage. Impairment losses associated with operations at this stage correspond to the expected credit loss resulting from the difference between the outstanding amount and the present value of the cash flows that are estimated to be recovered from the exposure (lifetime expected credit losses).

In operational terms, two complementary models to calculate impairments coexist at the Bank: i) for General Credit and for Lending Activity, and ii) for Auto Loans.

i) For General Credit and for Lending Activity:

The calculation process is autonomised for the exposures subject to Collective Analysis and for the exposures subject to Individual Analysis.

Values at risk (EAD) consider not only past due amounts (principal, interest and other charges) but also principal falling due and, in the case of active contracts, the respective interest accrued since the last payment, up to the date of calculation of the impairments.

The calculation of the Probability of Default (PD) for one year or until maturity (lifetime) is based on a logistical binomial linear regression model, using independent variables extracted from the portfolio management utility, covering the entire historical period on the system.

The Loss Given Default (LGD) is based on the historical record of the operations which generated a loss, and on the prediction of loss in operations considered unproductive (without regular payment of interest or amortisation of principal), taking into account the associated collateral, and its probable realisation time and value.

Three prospective analysis scenarios are considered: i) baseline, ii) favourable and iii) unfavourable, where the final result is weighted by the probability of occurrence estimated for each of the mentioned scenarios.

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The exposures classified in stages 1 or 2 are subject to the calculation of impairments by Collective Analysis - in which PD and LGD are determinant -, unless they had previously been subject to calculation by Individual Analysis, which justifies the continued use of this method.

On the other hand, they are subject to the calculation of impairments by Individual Analysis - in which the following are determinant: a) the present value of the probable value of net realisation of the collaterals, as well as b) the probable time for its realisation – the exposures classified in Stage 3, which: i) are marked as non performing (NPL), ii) being performing have a value at risk of more than 500,000 euros; or iii) have surpassed the quarantine period and, during that period and as previously mentioned, have been subject to the calculation of impairments by Individual Analysis.

The probable value of realisation of collateral, in the case of General Credit, is determined by periodic and regular evaluations undertaken by external and CMVM accredited evaluators, whose final result will be subject to a hair cut according to the date of realisation and, in the case of the Lending Activity, by the precious metal content of the pledged objects and their official value, calculated at the time the loan was granted and in all monthly periods of impairment calculation.

If the process of calculating impairments through the Individual Analysis method does not determine the quantification of any impairment, a minimum impairment shall nonetheless be calculated through the application of the value at risk of a PD over a one-year period and its LGD.

ii) For Auto Loans

Taking into consideration the risk dispersion (granularity of the portfolio) and in line with the practice institutionalised by the other market operators, the calculation of impairments follows exclusively the Collective Analysis method.

In any case, since this is a portfolio that was recently set up and has been in existence a little over two years, there is as yet no consolidated statistical basis to conduct a consistent behavioural analysis.

As such and based on the professional judgement of its dedicated team - with a vast experience in the sector - a quite defensive impairment recognition model is followed, which leads the exposures classified in stage 3 to be considered with a PD of 100% and an LGD of 50% for arrears of up to 180 days and of 75% for arrears of more than 180 days.

Purchase or originated credit impairment assets

Purchase or originated credit impaired assets (POCI) are assets which present objective evidence of credit impairment on initial recognition. An asset is credit-impaired if one of more events have occurred that have a negative impact on the estimated future cash flows of the asset.

The following event leads to the origination of a POCI exposure: financial assets arising from a recovery process, where there have been changes to the terms and conditions of the original contract, which presented objective evidence of impairment that resulted in its derecognition and recognition of a new contract that reflects the credit losses incurred.

On initial recognition, POCI assets do not carry an impairment allowance. Instead, lifetime expected credit losses are incorporated into the calculation of the effective interest rate. Consequently, on initial recognition, the gross book value of POCI is equal to the net book value before being recognised as POCI (difference between the initial balance and the total discounted cash flows).

Write offs

When considering risk of non-fulfilment, the Bank fully respects, in recognising impairment, the guidelines of Circular Letter 02/2014/DSP of the Bank of Portugal.

The Credit Recovery Department monitors the past due exposures that comply with the requirements of classification as irrecoverable and drafts a classification proposal and prepares the corresponding dossiers.

An exposure to credit risk is classified as irrecoverable under the following conditions:

i. In Enforcement proceedings, when the case is dismissed, due to a lack of seizable assets of the defendants (Debtor or Guarantors);

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ii. In Insolvency proceedings, when of a limited nature (lack of seizable assets of the insolvent debtor), following a decision on the verification and ranking of claims;

iii. In Insolvency Plans or Credit Recovery Procedures when, based on the approved repayment plan, there is a full or

partial writing off of the acknowledged debts;

iv. Overdue loans for more than two years in a scenario of total impairment, i.e. when the Bank, after undertaking all recovery efforts considered adequate and gathering available evidence, justifiably concludes that there are no reasonable expectations of recovery of the amounts at risk.

The following constitute objective indicators of uncollectability of a debt:

i. The circumstance of a debtor or Guarantors whose whereabouts are unknown;

ii. The fact that the extra-judicial initiatives undertaken by the Bank, duly confirmed and considered adequate, proved ineffective in establishing a plan to restructure or recover the amounts at risk;

iii. The confirmation that the Debtor or Guarantors do not have a steady income to substantiate its seizure;

iv. Evidence, supported by the land register or vehicle registration, that the Debtor and Guarantors’ assets, if any, has prior covenants or encumbrances that lead to conclude (in accordance with its probable realisation value) that their seizure, if carried out, would not enable the Bank to recover its credit;

The assessment that the enforcement of the debt, if possible, is not economically viable (unfavourable cost-benefit ratio) due to the cost and waiting time of court proceedings.

Main adjustments in the calculation of impairments – IFRS 9

The main adjustments to the impairment calculation models, compared to the end of 2017, within the scope of the application of IFRS 9, are as follows:

- the consideration of the prospective scenarios (baseline, favourable and unfavourable) and the determination of the final result on a weighted basis;

- the determination and consideration of a lifetime PD, in the calculation of impairments of the exposures marked in stage 2;

- the alignment of the concepts of default, NPL and impaired; - the implementation of the quarantine and probation periods, for the exposures considered cured.

b) Financial liabilities

An instrument is classified as a financial liability when there is a contractual obligation at settlement to deliver cash or another financial assets, regardless of its legal form. Financial assets are derecognised when the underlying obligation is settled, expires or is cancelled.

At initial recognition, financial assets are classified into one of the following categories: i) Financial assets at amortised cost; and ii) Financial liabilities at fair value through profit or loss. i) Financial liabilities at amortised cost

The financial liabilities that were not classified at fair value through profit or loss, nor correspond to financial guarantee contracts, are measured at amortised cost.

The category of “Financial liabilities at amortised cost” includes central bank resources, resources from credit

institutions, resources from customers and other loans and non-subordinated debt securities.

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Initial recognition and subsequent measurement Financial liabilities at amortised cost are initially recognised at fair value, plus transaction costs, and are subsequently

measured at amortised cost. Interest from financial liabilities at amortised cost is recognised under the item “Interest and similar charges”. Based on the effective interest rate method.

ii) Financial liabilities at fair value through profit or loss

Financial liabilities in the category of “Financial liabilities at fair value through profit or loss” refer to: - Financial liabilities held for trading

The following liabilities are classified under this caption: liabilities issued with the objective of short-term repurchase; liabilities that are part of a portfolio of identified financial instruments and for which there is evidence of a recent pattern of short-term profit taking; or which are derivatives (except for hedging derivatives).

Considering that the transactions carried out by the Bank in the normal course of its activity were in market conditions, the financial liabilities at fair value through profit or loss are initially recognised at fair value, with the costs or income associated with the transactions recognised in profit or loss at inception.

The subsequent changes in fair value of these financial liabilities are recognised as follows: - the change in the fair value attributable to changes in the credit risk of the liability is recognised in other

comprehensive income; - the remaining value of the change in fair value is recognised in profit or loss.

The accrual of interest and the premium/discount (when applicable) is recognised in “Interest and similar charges” based on the effective interest rate of each transaction.

Financial guarantees

The contracts that require the issuer to make payments to compensate the holder for incurred losses arising from breaches of the contractual terms of debt instruments, namely the payment of the respective capital and/or interest, are considered as financial guarantees.

Issued financial guarantees are initially recognised at fair value. Subsequently, these guarantees are measured at the highest of (i) the fair value initially recognised and (ii) the amount of any obligation arising from the guarantee contract, measured at the balance sheet date. Any change in the value of the obligations associated to issued financial guarantees is recognised in profit or loss.

If they are not designated at fair value through profit or loss at the time of initial recognition, the financial guarantee contracts are subsequently measured at the highest of the following amounts:

- the provision for losses determined according to the criteria described in the point relative to the impairment losses of financial assets;

- the amount initially recognised deducted, where appropriate, from the accumulated amount of income recognised according with IFRS 15 - Revenue from contracts with customers.

The ECL of the financial guarantee contracts that are not designated at fair value through profit or loss are presented under “Provisions”.

Reclassification between categories of financial liabilities

Reclassifications of financial liabilities are not allowed.

c) Equity instruments

An instrument is classified as an equity instrument when there is no contractual obligation at settlement to deliver cash or another financial asset, regardless of its legal form, and there is a residual interest in the assets of an entity after deducting all its liabilities.

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Costs directly attributable to the issuance of equity instruments are recognised in equity as a deduction to the amount issued. Amounts paid or received related to sales or acquisitions of equity instruments are recognised in equity, net of transaction costs.

Distributions to holders of equity instruments are debited directly to equity as dividends, when declared.

Preference shares are considered equity instruments when redemption of the shares is solely at the discretion of the Group and dividends are paid at the discretion of the Group.

d) Derivatives

The Bank carries out derivative transactions as part of its business with a view to satisfying the needs of its customers and to reduce its exposure to prices, foreign exchange and interest rate fluctuations.

Derivatives are recorded at fair value on the date of acquisition. Furthermore, they are shown in off-balance sheet items for their notional value.

Subsequently, they are measured at their fair value. Fair value is calculated: - Based on prices in asset markets (e.g. relating to the futures traded on organised markets); - Based on models that incorporate valuation techniques accepted on the market, including discounted cash flows and

option valuation models.

Embedded derivatives

An embedded derivative is a component of a hybrid agreement, which also includes a non-derived host instrument. If the main principal included in the hybrid contract is considered a financial asset, the classification and measurement of the entire hybrid contract is carried out in accordance with the criteria described for Financial assets at fair value through profit or loss.

Derivatives embedded in contracts that are not considered financial assets are treated separately where the economic risks and benefits of the derivative are not related to those of the main instrument, since the hybrid instrument is not initially recognised at fair value through profit or loss. Embedded derivatives are recorded at fair value with subsequent fair value changes recorded in profit or loss for the period and presented in the trading derivatives portfolio.

Trading derivatives

Derivatives for trading are those derivatives that are not associated with effective hedge relations, including: - Derivatives acquired to manage risk in assets or liabilities recorded at fair value through profit or loss, rendering the

use of hedge accounting unnecessary; - Derivatives acquired to hedge risk that are not effective hedges; - Derivatives acquired for trading purposes.

Trading derivatives are stated at fair value, with gains and losses being recognised daily in income and costs for the year. Trading derivatives with a positive fair value are included in the item “Financial assets held for trading”, while trading derivatives with a negative fair value are included in the item “Financial liabilities held for trading”.

2.6. Recognition of interest

Interest income and expense for financial instruments measured at amortised cost are recognised in the items of “Interest and similar income” or “Interest and similar costs” (net interest income), through the effective interest rate method. The interest, based on the effective interest rate method, related to financial assets at fair value through other comprehensive income is also recognised in net interest income.

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The effective interest rate corresponds to the rate that discounts estimated future cash payments or receipts through the expected life of the instrument (or, when appropriate, a shorter period) to the net carrying amount of the financial asset or financial liability.

When calculating the effective interest rate, the Bank estimates future cash flows considering all contractual terms of the financial instrument (for example, early payment options) but without considering any impairment losses. The calculation includes all fees paid or received considered as included in the effective interest rate, transaction costs and all other premiums or discounts directly related with the transaction, with the exception of financial assets and liabilities at fair value through profit or loss.

Interest income recognised in profit or loss is calculated based on the effective interest rate of each contract on its gross balance sheet value. The gross balance sheet value of a contract is its amortised cost, before deducting the respective impairment.

For purchase or originated credit impairment assets (POCI) the effective interest rate reflects the expected credit losses in determining the expected future cash flows to be received from the financial asset.

2.7. Non-current assets held for sale

Non-current assets, or groups of assets and liabilities to be sold, are classified as held for sale whenever it is likely that their balance sheet value may be recovered by selling rather than by their continued use. The following requirements must be met so that an asset (or group of assets and liabilities) can be classified under this item:

- High probability of sale; - The asset is available for immediate sale in its current state at a reasonable price relative to its current fair value; - The sale is expected to take place within one year of classifying the asset in this item.

In those cases in which the asset is not sold within a year, the Bank assesses if the requisites continue to be fulfilled, namely the sale did not occur for reasons unconnected with the Bank, which undertook all the actions necessary for the sale to take place and that the asset continues to be actively publicised and at reasonable sales prices according to market circumstances.

Assets recorded under this item are valued at acquisition cost or fair value, whichever is lower, and adjusted by the costs incurred by the sale. The fair value of these assets is calculated based on assessment by independent experts, and the assets are not amortised.

2.8. Investment properties

Correspond to real estate held with the objective of obtaining income through rental and/or its increase in value. Investment properties are recorded at acquisition cost, less accumulated amortisation and impairment losses.

2.9. Other tangible assets

Other tangible assets are recorded at acquisition cost, less accumulated amortisation and impairment losses. Repair and maintenance costs and other expenses associated with their use are recognised as costs for the year, under the item “General administrative costs”.

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Amortisation is calculated according to the straight-line method and recorded in costs in the year on a systematic basis over the estimated useful life of the asset, which corresponds to the period during which the asset is expected to be available for use, which is:

Years of usefull life

Premises 50

Leasehold expenses 4 - 10

Furniture and materials 8

Machines and tools 5 - 8

IT equipment 3 - 8

Fixtures and fittings 5 - 8

Vehicles 4

Safety equipment 8 - 10

Land and artistic heritage are not depreciated/amortised.

Whenever the net accounting amount of tangible assets is greater than its recoverable value, under the terms of IAS 36 – “Impairment of assets”, it is recognised as an impairment loss with effect on the profit and loss for the year. Impairment losses can be reversed, also with effect on the profit and loss for the period, if there is an increase in the recoverable amount of the asset in subsequent periods.

2.10. Financial leasing

Financial leasing operations are recorded as follows:

As lessor

Assets under finance leases are carried in the balance sheet as loans and advances to customers and are repayable through amortisation of the capital as established in the financial plan of the contracts. The interest included in the instalments is recorded as financial gains.

As lessee

The Bank did not carry out any financial leasing transactions as a lessee.

2.11. Intangible assets

This item essentially includes costs incurred with the acquisition, development or preparation for use of software used in the Group’s business operations. Intangible assets are recorded at acquisition cost, less accumulated amortisation and impairment losses.

Amortisation is recorded as costs in the year on a systematic basis over the estimated useful life of the asset, which corresponds to a period of 3 years.

Software maintenance costs are accounted as a cost in the year in which they are incurred.

2.12. Investments in subsidiaries, associated companies and joint ventures

This item includes investments in companies over whose current management the Bank has effective control in order to derive economic benefits from their operations, known as “subsidiaries”. Control usually means a shareholding of more than 50% of the capital or voting rights.

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The existence of significant influence by the Bank is normally demonstrated by one of more of the following forms: - representation on the Board of Directors or equivalent management body; - participation in policy definition processes, including the participation in decisions regarding dividends or other

distributions; - exchange of management staff; - supply of essential technical information.

These assets are recorded at acquisition cost, being subject to periodic impairment analyses.

The recoverable amount of the investments in subsidiaries and associated companies is assessed annually, regardless of the existence of impairment indicators. Impairment losses are calculated based on the difference between the recoverable value of the investments in subsidiaries or associated companies and their book value. Impairment losses identified are charged against results and subsequently, if there is a reduction of the estimated impairment loss, the charge is reversed against results, in a subsequent period. The recoverable amount is determined based on the value in use of the assets, calculated using valuation methodologies supported by discounted cash flow techniques, considering market conditions, the time value of money and the business risks.

The dividends are recognised as income in the period when the decision to distribute dividends amongst subsidiaries is taken.

2.13. Income taxes

Alves Ribeiro – Investimentos Financeiros, SGPS, S.A., holds 99.68 % of the Group’s share capital, and the latter is subject to corporate income tax (IRC) under the Special Taxation of Groups of Companies Scheme, as provided for in Articles 63 et seq. of the respective tax code. The perimeter of the group covered by said tax scheme includes the following companies:

- Alves Ribeiro – Investimentos Financeiros, SGPS, S.A.; - Banco Invest, S.A.; - Invest Gestão de Activos – Sociedade Gestora de Fundos de Investimento Mobiliário, S.A.; - US - Gestar – Gestão de Imóveis, S.A..

The taxable income of the Group of which Alves Ribeiro – Investimentos Financeiros, SGPS, S.A. is the controlling company is calculated on the basis of the algebraic sum of the taxable profits and of the tax losses determined individually, taxed at a 21% rate. According to Article 14 of the Local Finances Law, the municipalities may deliberate an annual Municipal Surcharge, up to a maximum rate of 1.5% of taxable income subject and not exempt from corporate income tax (IRC).

In addition, taxable profits are also subject to a state surcharge as follows: - 3% for taxable profits between 1,500,000 and 7,500,000 euros; - 5% for taxable profits between 7,500,000 and 35,000,000 euros; and - 9% for taxable profits of more than 35,000,000 euros;

Under article 51 of the Corporate Income Tax Code (in the version in force until the financial year of 2018), distributed profits and reserves, as well as the capital gains and losses realised by the Group through the sale of participations held in the share capital of companies, are not included in taxable profit, provided that the following cumulative requirements are met: (i) the Bank has holdings of not less than 10% of the share capital or of the voting rights in the entity that distributes profits, or in the entity whose participations held in the share capital of companies was sold, and provided the participation was held for a period of no less than 12 months (or, in the case of dividends, if held for a shorter period, that it be held for the time necessary to complete that period); (ii) the taxable person does not fall under the fiscal transparency scheme; (iii) the entity that distributes the profits or reserves, or whose capital is sold, is subject to and not exempt from corporate income tax (IRC), from a tax referred to in article 2 of Directive no. 2011/96/EU, of the Council, of 30 November, or from a tax of an identical or similar nature to corporate income tax and the applicable legal rate is not less than 60% of the corporate income tax rate; (iv) the entity that distributes profits or reserves, or the entity whose participations held in the share capital of companies were sold, do not reside in a tax haven.

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Total taxes on the profits recorded include current and deferred taxes.

Current tax corresponds to the value payable calculated based on the taxable profits for the year. Taxable profits differ from the accounting result, since it excludes various costs and income that will only be deductible or taxable in subsequent financial years, or were not deductible or taxable in previous financial years, as well as costs and income that will never be deductible or taxable according to the tax laws in force.

Deferred tax is related to the temporary differences between the amounts of the assets and liabilities for accounting reporting purposes and the respective amounts for taxation purposes, as well as results from tax benefits obtained and from differences between the taxable and the accounting result.

Deferred tax liabilities are generally recognised for all temporary taxable differences in the future.

As set out in the accounting standards, deferred tax assets are recognised for deductible temporary differences, conditioned by the existence of reasonable expectations of sufficient future taxable profits for those deferred tax assets to be used. At each reporting date, those deferred tax assets are reviewed and adjusted in accordance with the expectations relative to their future use.

The main situations for the Bank that give rise to temporary differences are impairments and provisions not accepted for tax purposes and increases in the value of financial assets at fair value through other comprehensive income.

Deferred tax assets and liabilities are measured by using the tax rates that are expected to be in force at the date of the reversion of the corresponding temporary differences, based on the tax rates (and tax laws) that have been enacted or substantively enacted on the reporting date. As at 31 December 2018 and 2017, the Bank used a rate of 24.5% to calculate the deferred taxes.

Corporate income tax (current or deferred) is shown in the profit and loss for the year, except where the transactions giving rise to it have been carried in other shareholders’ equity items (for example, in the case of revaluation of financial assets at fair value through other comprehensive income). Here, the corresponding tax is also carried against shareholders’ equity, and does not affect net income for the year.

2.14. Provisions and contingent liabilities

A provision is set up when there is a legal or constructive obligation, resulting from past events where it is likely that resources will be disbursed in the future, and this can be reliably established. The amount of the provision should match the best estimate of the amount to be disbursed to settle the liability on the balance sheet date, taking into account the principles defined in IAS 37.

If no future disbursement of resources is likely, then it is a contingent liability. Contingent liabilities are disclosed, unless the possibility of their occurrence is remote.

Provisions for other risks and liabilities are intended to cope with tax, legal and other contingencies.

Provisions are reviewed at each balance sheet date and adjusted to reflect the best estimate, being reverted through profit or loss in the proportion of the payments that are not probable.

The provisions are derecognised through their use for the obligations for which they were initially accounted or for the cases that the situations were not already observed. The provisions for credit commitments are recorded on the same ECL basis.

2.15. Employees’ benefits

Liabilities with employees’ benefits are recognised in accordance with the principles established by IAS 19 - Employee Benefits.

49

The Group has not subscribed to the Collective Bargaining Agreement in effect for the banking industry since its staff is covered by the General Social Security Scheme. For this reason, the Group had no liabilities for pensions or retirement pension supplements or other long-term benefits in respect of its employees as at 31 December 2018 and 2017.

Short-term benefits, including productivity bonuses paid to staff for their performance, are recorded in “Personnel costs” in the financial year to which they relate, in accordance with the accruals principle.

2.16. Commissions

Commissions received for credit operations and other financial instruments, especially commissions on the origination of transactions, are recognised as earnings over the transaction period.

Commissions for services provided are usually recognised as earnings over the period the service is provided or on a one-off basis, if they arise from single acts.

2.17. Amounts deposited

Amounts deposited, namely customers’ securities, are recorded at fair value in off-balance sheet items.

2.18. Cash and equivalents

For the preparation of the cash flow statements, the Group considers all the items of “Cash and balances at central banks” and “Claims on other credit institutions”, with less than three months’ maturity from the balance sheet date, as “Cash and equivalents”.

Cash and equivalents exclude restricted balances with central banks.

2.19. Offsetting

Financial assets and liabilities are offset and recognised at their net book value in the balance sheet when the Bank has a legal right to offset the amounts recognised and the transactions can be settled at their net value.

2.20. Critical accounting estimates and issues of judgment most relevant to the application of the accounting policies

The Group’s Board of Directors has had to provide some estimates in the application of the accounting criteria described above. The estimates with the biggest impact on the Group’s consolidated financial statements are listed below.

CLASSIFICATION AND MEASUREMENT – IFRS 9

The classification and measurement of the financial assets depends on the results of the SPPI test (analysis of the characteristics of the contractual cash flows, to conclude if the same correspond solely to payments of principal and interest on the principal amount outstanding) and of the business model test.

The Bank determines the business model based on the way groups of financial assets are managed collectively to achieve a specific business objective. This assessment requires judgement, since the following aspects, among others, have to be considered:

- the way in which the performance of the assets is assessed; - the risks that affect the performance of the assets and the way in which those risks are managed; and - the way in which the asset managers are remunerated.

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The Group monitors the financial assets measured at amortised cost and at fair value through other comprehensive income that are derecognised prior to their maturity, to understand the reasons underlying their disposal and determine if they are consistent with the objective of the business model defined for those assets. This monitoring is included in the Bank’s continuous assessment process of the business model of the financial assets remaining in portfolio, to determine if the latter is adequate and, if not, whether there was a change in the business model and, as a result, a prospective change of the classification of those financial assets.

CALCULATION OF IMPAIRMENT LOSSES IN FINANCIAL ASSETS – IFRS 9

Impairment losses in loans granted are calculated in accordance with the method defined in Notes 2.5., 43 and 46. As such, the calculation of impairment in individually analysed assets results from a specific assessment carried out by Banco Invest, using its knowledge of customers’ circumstances and the guarantees associated with the operations in question.

The determination of impairment losses for financial instruments involves judgements relative to the following aspects, among others:

Significant increase in credit risk: Impairment losses correspond to the expected losses on a 12-month horizon for the assets in stage 1, and to the

expected losses considering the probability of a default event occurring at some point up to the maturity date of the financial instrument for the assets in stage 2 and 3. An asset is classified in stage 2 whenever there is a significant increase in credit risk since its initial recognition. In assessing the existence of a significant increase in credit risk, the Bank considers qualitative and quantitative, reasonable and sustainable information.

Business model evaluation: The classification and measurement of the financial assets depends on the characteristics of the contractual cash flows

of the financial asset and the definition of the business model. The Bank determines the business model according to the way in which it wants to manage the financial assets and the business objectives. The Bank monitors whether the classification of the business model is appropriate based on the analysis of the early derecognition of the assets at amortised cost or at fair value through equity, evaluating whether a prospective change of the classification is necessary.

Definition of groups of assets with common credit risk characteristics: When expected credit losses are measured on a collective basis, the financial instruments are grouped based on common

risk characteristics. The Group monitors the adequacy of the credit risk characteristics in order to ensure that the reclassification of assets is carried out appropriately, in the event of a change in the credit risk characteristics.

Models and assumptions used: The Group uses various models and assumptions to measure the estimated expected credit losses. Judgement is applied

in the identification of the most appropriate model for each type of assets, as well as to determine the assumptions used in these models, including the assumptions related to the main credit risk drivers.

Probability of default: The probability of default represents a determining factor in the measurement of the expected credit losses. The

probability of default corresponds to an estimate of the probability of default in a certain time period, whose calculation is based on historical data, assumptions and expectations regarding future conditions.

CALCULATION OF IMPAIRMENT LOSSES IN NON-CURRENT ASSETS HELD FOR SALE

Non-current assets held for sale are measured at acquisition cost or fair value, whichever is lower, less the costs incurred by the sale, as mentioned in Note 2.7.

The fair value of these assets is calculated based on evaluations carried out by independent entities specialised in this type of service. The evaluation reports are analysed internally, namely by comparing the sales values with the revalued real estate values in order to maintain updated the parameters and processes of assessment of market developments.

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The use of alternative methodologies and of different assumptions may result in a different level of fair value with an impact on the recognised balance sheet value.

CALCULATION OF INCOME TAX

Current and deferred taxes are determined by the Group using the rules established by the tax regulations in force. In certain situations, the tax law may not be sufficiently clear and objective, and more than one interpretation may arise. In such situations, the amounts recorded are the outcome of the best judgment of the Bank’s administrative bodies regarding the correct context for its operations, which may be questioned by the tax authorities.

3. GROUP COMPANIES

The main information on the business of the Bank’s subsidiaries, as well as the consolidation method employed, may be summed up as follows:

2018 2017

Net Net Net Net Net Net

Company assets equity income assets equity income

Banco Invest, S.A. 766,994,782 109,486,444 13,745,535 620,093,985 98,302,657 5,000,697

Invest Gestão de Ativos - SGFIM, S.A. 2,647,641 2,557,598 249,189 2,372,456 2,308,410 189,843

Fundo Tejo 8,192,391 8,062,341 458,165 7,728,528 7,604,176 451,269

Saldanha Holdings 19,937 12,217 (102,361) 120,428 114,578 (18,913)

Saldanha Finance 16,750 5,914 (28,074) 5,241,245 5,233,989 (24,911)

As at 31 December 2018 and 2017, the more significant financial highlights of the respective individual financial statements can be summed up as follows:

Company Business

Registered Shareholding Consolidation Office (%) method

Banco Invest, S.A. Banking Lisbon n.a. n.a.

Invest Gestão de Ativos - SGFIM, S.A. Mutual fund management Lisbon 100% Full

Fundo Tejo Real estate purchase and sale Lisbon 86.5% Full

Saldanha Holdings Financial company Malta 100% Full

Saldanha Finance Financial company Malta 100% Full

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4. CASH AND BALANCES AT CENTRAL BANKS

This item was made up as follows:

31 December 2018 31 December 2017

Cash in hand 644,725 1,129,861

Demand deposits at the Bank of Portugal 3,588,620 8,014,553

4,233,345 9,144,414

Demand deposits at the Bank of Portugal aim to comply with the minimum cash reserve requirements of the European System of Central Banks (ESCB). These deposits bear interest and correspond to 2% of Customers’ deposits and debt securities maturing in up to 2 years, excluding deposits and debt securities of entities subject to the ECBS minimum cash reserves regime.

5. AMOUNTS AND DEPOSITS AT OTHER CREDIT INSTITUTIONS



Cheques payable

- In Portugal 502,392 494,818

Demand deposits

- In Portugal 1,735,446 2,942,391

- Abroad 9,476,056 2,987,044

11,713,894 6,424,253

The item Cheques payable represents essentially cheques drawn by third parties on other credit institutions that are due for collection. The balances of this item are settled in the first few days of the following month.

6. FINANCIAL ASSETS AT AMORTISED COST – LOANS AND ADVANCES TO CREDIT INSTITUTIONS

As at 31 December 2018 and 2017, this item was made up as follows:


Loans and advances to credit institutions

Credit institutions in Portugal 2,400,000 1,400,000

Interest receivable 135,337 55

2,535,337 1,400,055

As at 31 December 2018 and 2017, the times to maturity of deposits at credit institutions were as follows:


Up to 3 months 2,000,000 1,000,000

3 months to 1year 535,337 400,055

2,535,337 1,400,055

Deposits at credit institutions are at stage 1.

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7. FINANCIAL ASSETS AT AMORTISED COST - LOANS AND ADVANCES TO CUSTOMERS



Domestic loans

Property leasing transactions 42,308,880 51,040,944

Medium and long-term loans 58,189,155 74,483,518

Current account loans 17,256,276 17,434,243

Consumption and auto loans 171,854,028 94,339,439

Equipment finance leasing transactions 336,298 602,722

Current account overdrafts 2,107,362 3,177,501

Other loans 8,270,538 11,896,272

300,322,537 252,974,639

Foreign loans

Current account overdrafts 663,865 8,913

300,986,402 252,983,552

Interest receivable 1,381,738 674,678

Commissions associated to amortised cost

Deferred charges 11,818,623 6,554,475

Deferred income (5,010,275) (2,841,242)

6,808,348 3,713,233

Past due principal and interest 29,303,544 28,158,058

338,480,032 285,529,521

Impairment (Note 24)

Impairment for non-securitised loans (26,316,481) (28,483,680)

(26,316,481) (28,483,680)

312,163,551 257,045,841

As at 31 December 2018, the holders of a qualified shareholding in the Group’s capital, identified in the Board of Directors’ report and in note 42, and to whom the Bank granted a loan, represented in aggregate terms 27% of the share capital (2017: 25%)

With reference to 31 December 2018, the loans that the Bank granted to qualifying shareholders and to companies controlled by the latter, came to 15,935,500 euros (2017: 16,455,419 euros), according to Note 42. Business between the Group and qualifying shareholders or natural persons or legal entities related to the latter under the terms of article 20 of the Portuguese Securities Code, regardless of the amount, is always subject to assessment and deliberation by the Board of Directors. The impairment amount set up for these contracts comes to 163,335 euros as at 31 December 2018 (31 December 2017: 164,755 euros).

The movement under impairment in 2018 and 2017 is given in Note 24.

In September 2016 the Group initiated its auto loan concession activity. At the end of 2018 the amount of credit concession came to 171,854,028 euros (2017: 94,339,439 euros).

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As at 31 December 2018 and 2017, the breakdown of times to maturity of loans and advances to customers, excluding past due loans, is as follows:

2018 2017

Up to 3 months 9,250,635 13,460,813

3 months to 1 year 26,224,330 9,735,566

1 year to 5 years 42,818,218 40,832,011

More than 5 years 222,693,219 188,955,162

300,986,402 252,983,552

As at 31 December 2018 and 2017, the breakdown of past due loans by age is as follows:

2018 2017

Up to 3 months 1,087,650 257,019

3 months to 1 year 2,897,718 1,633,125

More than 1 year 25,318,176 26,267,914

29,303,544 28,158,058

As at 31 December 2018, performing loans associated with past due loans (more than 3 months) amounted to 7,789,548 euros (2017: 14,150,651 euros).

As at 31 December 2018 and 2017, the breakdown of past due loans by type of guarantee was as follows:

2018 2017

Mortgage guarantee or financial leasing (property) 19,485,957 21,563,722

Commercial pledge of pharmacies 2,936,726 3,466,392

Other real guarantees 3,515,882 883,104

Personal guarantee 706,850 643,211

No guarantee 2,658,129 1,601,629

29,303,544 28,158,058

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As at 31 December 2018 and 2017, the breakdown of performing loans and past due loans, and the fair value of the underlying guarantees by type of loan was as follows:

2018

Fair value Performing Past due Total of associated guarantees

Loans and advances to customers

Property leasing transactions 42,308,880 2,675,236 44,984,116 105,051,737

Medium and long-term loans 58,189,155 20,064,836 78,253,991 106,073,382

Current account loans 17,256,276 1,043,888 18,300,164 1,848,996

Consumption and auto loans 171,854,028 2,004,267 173,858,295 -

Equipment finance lease transactions 336,298 266,604 602,902 253,132

Current account overdrafts 2,771,227 - 2,771,227 3,236,911

Other loans 8,270,538 3,248,713 11,519,251 16,744,056

300,986,402 29,303,544 330,289,946 233,208,214

2017

Fair value Performing Past due Total of associated guarantees


Property leasing transactions 51,040,944 3,091,123 54,132,067 121,373,315


Current account loans 17,434,243 1,202,973 18,637,216 453,689

Consumption and auto loans 94,339,439 572,229 94,911,668 -

Equipment finance lease transactions 602,722 15,651 618,373 49,025

Current account overdrafts 3,186,415 - 3,186,415 4,726,896

Other loans 11,896,271 1,048,322 12,944,593 17,758,502

252,983,552 28,158,058 281,141,610 225,629,895

The Group uses physical and financial collaterals as instruments to mitigate credit risk. Physical collaterals correspond mainly to mortgages on residential properties within the scope of loan operations and medium and long-term loans, or to the legal property in the case of real estate leasing operations. So as to reflect their market value, these collaterals are reviewed regularly based on evaluations conducted by certified, independent appraisers. The financial collaterals are re-evaluated based on market values of their assets, when available, and certain depreciation coefficients are applied to reflect their volatility.

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The breakdown of the loan portfolio, as at 31 December 2018 and 2017, by sector of activity, was as follows:

2018

Performing loans Past due loans Total

Individuals 175,366,938 10,400,377 185,767,315

Wholesale and retail trade; repair of motor vehicles and motorbikes 34,813,198 5,644,655 40,457,853

Financial and insurance activities 18,624,161 247,217 18,871,378

Real estate activities 10,811,885 4,510,691 15,322,576

Public administration and defence; mandatory social security - - -

Manufacturing industries 7,639,319 1,502,174 9,141,493

Construction 5,102,239 1,905,513 7,007,752

Agriculture, livestock, hunting, forestry and fishing 2,515,010 3,195,625 5,710,635

Administrative and support services activities 28,226,010 405,617 28,631,627

Consultancy, scientific, technical and similar activities 2,466,731 12,840 2,479,571

Human health and social support activities 1,589,903 267,192 1,857,095

Hotels, restaurants and similar 3,406,616 716,750 4,123,366

Water supply, sewerage, waste management and remediation activities 408,543 - 408,543

Other activities and services 5,924,578 2,266 5,926,844

Transportation and storage 1,424,248 183,313 1,607,561

Arts, entertainment, sports and recreational activities 1,892,695 242 1,892,937

Education 583,630 257,928 841,558

Electricity, gas, steam, hot and cold water and cold air - - -

Information and communication activities 190,698 51,144 241,842

Total loans 300,986,402 29,303,544 330,289,946

2017

Performing loans Past due loans Total

Individuals 117,472,176 8,374,945 125,847,121

Wholesale and retail trade; repair of motor vehicles and motorbikes 28,494,811 7,421,245 35,916,056

Financial and insurance activities 21,024,253 383,288 21,407,541

Real estate activities 12,848,543 5,557,191 18,405,734

Public administration and defence; mandatory social security - - -

Manufacturing industries 9,651,664 838,693 10,490,357

Construction 3,954,228 3,469,103 7,423,331

Agriculture, livestock, hunting, forestry and fishing 5,215,115 122,035 5,337,150

Administrative and support services activities 39,272,271 405,063 39,677,334

Consultancy, scientific, technical and similar activities 3,220,144 142,305 3,362,449

Human health and social support activities 3,544,069 324,828 3,868,897

Hotels, restaurants and similar 2,206,210 382,339 2,588,549

Other activities and services 1,963,086 - 1,963,086

Transportation and storage 2,138,147 372,802 2,510,949

Arts, entertainment, sports and recreational activities 1,663,122 107,676 1,770,798

Education 145,909 252,716 398,625

Electricity, gas, steam, hot and cold water and cold air - - -

Information and communication activities 169,804 3,829 173,633

Total loans 252,983,552 28,158,058 281,141,610

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To comply with the requirements for disclosure of IAS 17 – Leases, the Group prepared for the financial leasing portfolio, with reference to 31 December 2018 and 2017, the reconciliation between the minimum lease payments and their present value, for each one of the periods defined in the standard, presented in the following table:

2018 2017

Minimum lease payments

Up to 1 year 6,461,869 7,277,282

1 to 5 years 19,255,910 2 3,293,780

More than 5 years 26,218,018 33,225,730

51,935,797 63,796,792

Unearned financial income (9,290,619) (12,153,126)

42,645,178 51,643,666

Present value of minimum lease payments

Up to 1 year 5,037,127 5,500,596

1 to 5 years 15,200,885 18,129,765

More than 5 years 22,407,166 28,013,305

42,645,178 51,643,666

As at 31 December 2018 and 2017 the Bank´s financial leasing portfolio contains no contracts whose residual value is guaranteed by external entities, nor are there any contingent rents.

As at 31 December 2018, the total loan portfolio broken down by stage, as defined in IFRS 9, is as follows:



Gross value Impairment Gross value Impairment Gross value Impairment Total Gross value Impairment

Loans and advances to cusyomers

Property

leasing transactions 32,209,397 (536,624) 3,322,341 (448,961) 9,452,378 (2,881,627) 41,116,904 51,040,944 (5,418,525)

Medium and

long-term loans 47,991,368 (2,421,051) 2,424,895 (551,095) 27,837,728 (13,101,454) 62,180,391 74,483,518 (18,481,271)

Current account loans 17,256,276 (190,508) - - 1,043,888 (966,207) 17,143,449 17,434,243 (1,532,309)

Consumption

and auto loans 168,032,841 (1,341,439) 1,867,222 (393,573) 3,958,232 (2,552,872) 169,570,411 94,339,439 (1,797,135)

Equipment finance

lease transactions 315,308 (1,773) 4,438 (23) 283,156 (106,735) 494,371 602,722 (107,954)

Current

account overdrafts 2,771,227 (74,761) - - - - 2,696,466 3,177,501 (146,630)

Other loans 3,539,550 (51,585) 1,869,263 (60,803) 6,110,438 (635,390) 10,771,473 11,896,272 (999,856)

272,115,967 (4,617,741) 9,488,159 (1,454,455) 48,685,820 (20,244,285) 303,973,465 252,974,639 (28,483,680)

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As at 31 December 2017, the loan portfolio of the Group which includes, in addition to loans and advances to customers, the guarantees and standby letters of credit with and without impairment signs, as defined in IAS 39, is as follows:

2017

Total gross loans 353,918,991

Loans and advances to customers 281,816,288

Debt securities 72,102,703

Loans with impairment signs

Individually significant

Gross value 148,103,330

Impairment (26,208,996)

121,894,334

Collective analysis


Impairment (1,196,997)

12,567,566

Loans without impairment signs


Impairment IBNR (1,377,034)

190,674,064

The Total gross loans item includes loans directly granted to customers and indirect loans.

As at 31 December 2017, the Impairment and Impairment - IBNR items were calculated in accordance with the accounting policy described in note 2, including the provision for Guarantees and other commitments (see Note 29) in the amount of 71,540 euros.

The loans and advances to customers portfolio includes contracts which resulted from a formal restructuring with customers and consequent granting of new funding to replace the previous loans. The restructuring can result from a reinforcement of guarantees and/or settlement of part of the loan and imply an extension of maturities or change in interest rate. The analysis of restructured loans, by sectors of activity, is as follows:

2018

Performing loans Past due loans Total Impairment

Arts, entertainment, sports and recreational activities 1,048,654 - 1,048,654 26,360

Human health and social support activities 310,769 - 310,769 97,554

Real estate activities 137,736 1,264 139,000 42,565

Agriculture, livestock, hunting, forestry and fishing 1,866,568 25,654 1,892,222 479,317

Hotels, restaurants and similar 574,060 7,369 581,429 36,554

Wholesale and retail trade; repair of motor vehicles and motorbikes 3,781,158 24,147 3,805,305 845,523

Construction 46,151 - 46,151 259

Education 236,938 5,703 242,641 131,160

Manufacturing industries 1,808,211 81,083 1,889,294 280,965

Other activities and services 48,945 - 48,945 8,004

Individuals 2,012,808 511,360 2,524,168 509,713

Transportation and storage 17,437 - 17,437 2,912

Total Loans 11,889,435 656,580 12,546,015 2,460,886

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2017

Performing loans Past due loans Total Impairment

Administrative and support services activities 1,072,090 - 1,072,090 13,777

Arts, entertainment, sports and recreational activities 1,153,593 91,535 1,245,128 59,449

Human health and social support activities 1,221,454 6,553 1,228,007 134,720

Real estate activities 2,941,869 3,970 2,945,839 468,209

Agriculture, livestock, hunting, forestry and fishing 4,677,294 87,908 4,765,202 1,745,123

Hotels, restaurants and similar 164,468 (58) 164,410 6,652

Wholesale and retail trade; repair of motor vehicles and motorbikes 5,029,318 (26,198) 5,003,120 1,431,673

Construction 591,266 (2) 591,264 7,609

Education 32,510 3,370 35,880 462

Other activities and services 3,069,898 67,889 3,137,787 498,250

Transportation and storage 3,728,835 130,663 3,859,498 842,473

Total Loans 23,682,595 365,630 24,048,225 5,208,397

The renegotiated loans are also subject to an impairment analysis that results from the reassessment of expectations regarding the new cash flows, inherent to the new contractual conditions, updated at the effective original interest rate taking into consideration the new collaterals presented.

Regarding the performing restructured loans, the impairment amount associated to these operations comes to 2,460,886 euros (31 December 2017: 5,208,397 euros).

In addition, the portfolio includes loans which due to financial difficulties of the customer, were subject to changes to the initial conditions of the contract in the amount of 13,505,100 euros (31 December 2017: 24,048,223 euros), which present an impairment of 2,567,916 euros (31 December 2017: 5,208,397 euros).

8. FINANCIAL ASSETS AT AMORTISED COST - DEBT SECURITIES



Debt securities Portuguese government debt or public companies 20,795,872 5,000,000Other residents Credit Institutions 4,498,840 - Companies 56,996,374 42,592,367 Commercial paper 37,641,207 17,700,002 Interest receivable 1,145,526 305,615Non-residents Government debt 73,782,457 - Credit institutions 2,492,061 - Companies 33,798,145 6,474,114Interest receivable 2,188,700 30,605

233,339,182 72,102,703

Impairment (Note 24)Other loans and receivables - debt securities (460,732) (299,347)

(460,732) (299,347)

232,878,450 7,803,356

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The composition of the debt securities (non-residents, excluding the public issuers and the credit institutions, as at 31 December 2018 and 2017, by sector of activity, was as follows:


Extractive industries 2,458,842 -

Manufacturing industries 15,086,017 3,614,197

Electricity, gas, steam, hot and cold water and cold air 12,223,151 2,532,099

Information and communication activities 2,518,338 -

Financial and insurance activities 1,511,797 327,818

33,798,145 6,474,114

As at 31 December 2018, the debt securities portfolio, excluding interest receivable, broken down by stage, as defined in IFRS 9, is as follows:



Gross value Impairment Gross value Impairment Gross value Impairment Total Gross value Impairment

Debt securities 230,004,956 (460,732) - - - - 229,544,224 71,766,483 (299,347)

9. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

The Financial assets at fair value through profit or loss item is analysed as follows:


Financial assets at fair value through profit or loss

Financial assets held for trading

Debt instruments 48,080,160 34,403,202

Interest receivable 405,084 218,034

Equity instruments 6,161,507 11,812,079

Derivatives 3,395,296 1,874,128

58,042,047 48,307,443

Financial assets not held for trading mandatorily at fair value through profit or loss

Equity instruments 16,012,916 -

16,012,916 -

The Financial assets not held for trading mandatorily at fair value through profit or loss - equity instruments item resulted from the reclassification on 1 January 2018 of the investment units of the funds, since their characteristics did not permit their classification in comprehensive income under the accounting policy described in note 2.5.

Included under this heading are the investment units of the Fundo Inspirar, in the amount of 4,114,093 euros, according to Note 42.

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These items were made up as follows:


Financial assets

Financial assets Financial assets

Financial assets

held for not held for

held for not held for

trading

trading mandatorily trading

trading mandatorily at fair value at fair value through profit through profit or loss or loss Debt instruments

Other residents

Other national public issuer - - - -

Credit institutions 1,007,010 - 2,016,210 -

Companies 5,628,018 - - -

Non-residents

Foreign public issuers 1,363,806 - 7,123,908 -

Credit institutions 15,918,310 - 7,464,026 -

Companies 24,163,016 - 17,799,058 -

48,080,160 - 34,403,202 -

Interest receivable 405,084 - 218,034 -

48,485,244 - 34,621,236 -

Equity instruments

Residents

Shares 22,095 - 30,190 -

Investment units - 15,939,737 - -

Non-residents

Shares 5,220,084 - 11,418,210 -

Investment units 919,328 73,179 363,679 -

6,161,507 16,012,916 11,812,079 -

Derivatives

Swaps

Interest rate 521,638 - 264,956 -

Other 2,826,771 - 1,608,460 -

Options embedded

in structured deposits 46,887 - 712 -

3,395,296 - 1,874,128 -

58,042,047 16,012,916 48,307,443 -

As at 31 December 2018, the portfolios are recorded at fair value through profit or loss, according to the accounting policy described in note 2.5.

62

The composition of the debt instruments (non-residents), excluding the public issuers and the credit institutions, as at 31 December 2018 and 2017, by sector of activity, was as follows:


Extractive industries 483,432 710,708

Manufacturing industries 10,412,296 4,524,486

Electricity, gas, steam, hot and cold water and cold air 2,348,894 1,414,687

Water supply, sewerage, waste management and remediation activities 1,529,970 1,550,880

Wholesale and retail trade; repair of motor vehicles and motorbikes 398,152 2,658,001

Transportation and storage 2,045,990 2,105,720

Information and communication activities 2,943,581 1,572,155

Financial and insurance activities 3,527,015 2,037,555

Administrative and support services activities 473,686 1,224,866

24,163,016 17,799,058

As at 31 December 2018 and 2017, the nominal value of the debt instruments is as follows:


Other resident

Other public issuers - -

Credit institutions 1,000,000 2,000,000

Companies 5,600,000 -

Non-residents

Foreign public issuers 1,500,000 7,000,000

Credit institutions 20,100,000 9,200,000

Companies 25,028,000 17,556,000

53,228,000 35,756,000

63

As at 31 December 2018 and 2017, the transactions with derivatives were valued in accordance with the criteria in Note 2.5. On these dates, the breakdown of the notional amount and book value was as follows:

2018

Notional Book value

amount

Financial Financial

Trading assets held liabilities held Total

derivatives

for trading for trading

(Note 23) Derivatives

Over the counter (OTC)

- Swaps

Interest rate 65,855,869 521,638 (27,610) 494,028

Other 5,878,246 2,826,771 - 2,826,771

- Options embedded

in structured deposits 54,764,787 46,887 (210,319) (163,432)

- Options

Equities 7,321,749 - (772,787) (772,787)

133,820,651 3,395,296 (1,010,716) 2,384,580

Traded on the stock exchange

- Futures

Interest rate 56,510,489 - - -

Equities 1,468,755 - - -

Foreign exchange 1,880,198 - - -

59,859,442 - - -

193,680,093 3,395,296 (1,010,716) 2,384,580

64

2017

Notional Book value

amount

Financial Financial

Trading assets held liabilities held Total

derivatives

for trading for trading

(Note 23) DerivativesOver the counter (OTC)- Swaps Interest rate 111,520,162 264,956 (220,298) 44,658 Other 5,878,247 1,608,460 - 1,608,460- Options embedded in structured deposits 37,140,868 712 (445,564) (444,852)- Options Equities 14,352,640 - (1,172,866) (1,172,866)

168,891,917 1,874,128 (1,838,728) 35,400

Traded on the stock exchange- Futures Interest rate 82,175,822 - - - Equities 1,473,680 - - - Foreign exchange 4,898,033 - - -

88,547,535 - - -

257,439,452 1,874,128 (1,838,728) 35,400

The distribution of derivative transactions as at 31 December 2018 and 2017, by times to maturity, was as follows (by notional amount):

2018

> 3 months > 6 months > 1 year

<= 3 months <= 6 months <= 1 year <= 5 years > 5 years Total

Derivatives


- Swaps

Interest rate - 7,903,808 37,479,538 20,472,523 - 65,855,869

Other - - - - 5,878,246 5,878,246

- 7,903,808 37,479,538 20,472,523 5,878,246 71,734,115

- Options embedded

in structured deposits 6,583,927 5,939,615 20,785,518 21,455,727 - 54,764,787

- Options

Equities and exchanges rates 500,000 2,564,749 3,257,000 1,000,000 - 7,321,749

- Futures

Interest rate 18,064,312 12,636,414 16,293,250 9,516,513 - 56,510,489

Equities 1,468,755 - - - - 1,468,755

Foreign exchange 1,880,198 - - - - 1,880,198

21,413,265 12,636,414 16,293,250 9,516,513 - 59,859,442

28,497,192 29,044,586 77,815,306 52,444,763 5,878,246 193,680,093

65

2017

> 3 months > 6 months > 1 year

<= 3 months <= 6 months <= 1 year <= 5 years > 5 years Total

Derivatives


- Swaps

Interest rate 31,967,272 - 27,768,028 51,784,862 - 111,520,162

Other - - - - 5,878,247 5,878,247

31,967,272 - 27,768,028 51,7784,862 5,878,247 117,398,409

- Options embedded

in structured deposits 6,052,532 7,542,300 7,105,067 16,440,969 - 37,140,868

- Options

Equities and exchange rates 1,000,000 1,785,702 9,002,189 2,564,749 - 14,352,639


- Futures

Interest rate 34,804,660 17,554,250 10,529,400 19,287,512 - 82,175,822

Equities 1,473,680 - - - - 1,473,680

Foreign exchange 4,898,033 - - - - 4,898,033

41,176,373 17,554,250 10,529,400 19,287,512 - 88,547,535

80,196,177 26,882,252 54,404,684 90,078,092 5,878,247 257,439,451

The distribution of derivative transactions as at 31 December 2018 and 2017, by type of counterparty, was as follows:

2018 2017


Swaps

Interest rate

- Financial institutions 65,855,869 111,520,162

Other

- Customers 5,878,246 5,878,247

Options embedded in structured deposits

- Customers 54,764,787 37,140,868

Equity options

- Financial institutions - -

- Customers 7,321,749 14,352,640

133,820,651 168,891,917


Futures

- Interest rate 56,510,489 82,175,822

- Equities 1,468,755 4,898,033

- Foreign exchange 1,880,198 1,473,680

59,859,442 88,547,535

193,680,093 257,439,452

66

10. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME



Debt instruments

Other residents

Other national public issuers 2,265,092 -

Other 4,395,910 -

Non-residents

Foreign public issuers 25,343,749 -

Other 66,260,379 -

98,265,130 -

Interest receivable 496,800 -

98,761,930 -

Impairment of other securities - -

98,761,930 -

The composition of the debt instruments (non-residents), excluding the public issuers and the credit institutions, as at 31 December 2018 and 2017, by sector of activity, was as follows:


Extractive industries 1,057,540 -

Manufacturing industries 11,293,405 -

Electricity, gas, steam, hot and cold water and cold air 13,216,545 -

Wholesale and retail trade; repair of motor vehicles and motorbikes 2,384,725 -

Information and communication activities 3,921,490 -

Financial and insurance activities 33,890,169 -

Administrative and support services activities 496,505 -

66,260,379 -



Other residents

Other national public issuers 2,100,000 -

Others 4,460,000 -

Non-residents

Foreign public issuers 26,600,100 -

Other 66,800,000 -

99,960,100 -

67

As described in the accounting policy referred in Notes 2.5 and 43, the portfolio of financial assets available for sale is presented at its market value, with the respective recorded fair value offset against fair value reserves (Note 27). As at 31 December 2018 and 2017, the unrealised gains and losses in financial assets available for sale were as follows:


Debt instruments

Other residents

Portuguese public debt (166,703) -

Other bonds 49,915 -

Non-residents

Foreign public issuers (194,389) -

Other bonds 535,693 -

224,516 -

Equity instruments 189,668 -

Net potential gains (Note 27) 414,184 -

As at 31 December 2018, the portfolio of Financial assets at fair value through other comprehensive income, excluding interest receivable, broken down by stage, as defined in IFRS 9, is as follows:



Gross value Gross value Gross value Total Gross value

Financial assets at fair value through other comprehensive income 98,265,130 - - 98,265,130 -

68

11. FINANCIAL ASSETS AVAILABLE FOR SALE



Debt instruments

Portuguese government debt - 2,279,163

Other residents

- Credit institutions - -

- Other bonds - 12,951,260

Non-residents

- Foreign public issuers - 13,155,370

- Other bonds - 47,307,099

- 75,692,892

Interest receivable - 688,310

- 76,381,202

Equity instruments

Issued by residents

- Valued at fair value - 7,230,483

Issued by non-residents

- Valued at fair value - 294,135

- 7,524,618

- 83,905,820

Impairments of other securities - (4,213,505)

- 79.692.315

The composition of the Financial assets for sale (non-residents), excluding the public issuers and the credit institutions, as at 31 December 2018 and 2017, by sector of activity, was as follows:


Manufacturing industries - 10,440,406

Transportation and storage - 519,185

Construction - 978,139

Financial and insurance activities - 1,013,530

- 12,951,260

69

The following table presents a breakdown of the equity instruments, showing amounts both gross and net of impairment, of the portfolio as at 31 December 2018 and 2017:

2018 2017

Equity Gross Net Gross Netinstruments value

Impairment value value

Impairment value

Issued by residents

- Shares - - - 146,000 (146,000) -

- Investment units - - - 7,084,483 (1,035,031) 6,049,452


- Shares - - - 41,691 (41,691) -

- Investment units - - - 252,444 (252,444) -

- - - 7.524.618 (1.475.166) 6.049.452

In 2017, the value of shares issued by residents in the amount of 146,000 euros represents the position that the Bank has in portfolio of Banif shares, which are in default.

As established in IFRS 13, the financial instruments are measured in accordance with the valuation levels described in note 43.

The Bank recognises impairment in the financial assets available for sale whenever there is a prolonged or significant decline in their fair value or when there is an estimated impact on the future cash flows of the assets. This assessment implies a judgement by the Bank, which takes into consideration, among other factors, the volatility of the share prices. The movement under impairment in 2018 and 2017 is given in Note 24.

As at 31 December 2017, the “Equity instruments – Issued by residents” item includes the shareholding in the Fundo Especial de Investimento Imobiliário Fechado - Inspirar, in the amount of 5,233,000 euros, managed by Invest Gestão de Activos. The Bank signed a fixed-term contract to sell the investment units of the Fundo Inspirar with an entity of the Alves Ribeiro Group, for a value exceeding the acquisition cost.



Debt instruments

Portuguese government debt - 2,100,000

Other residents

- Credit institutions - 1,000,000

- Other bonds - 11,350,0000

Non-residents


- Other bonds - 45,750,000

- 73,300,100

70

As described in the accounting policy referred in Notes 2.5 and 43, the portfolio of financial assets available for sale is presented at its market value, with the respective recorded fair value offset against fair value reserves (Note 27). As at 31 December 2018 and 2017, the unrealised gains and losses in financial assets available for sale were as follows:


Debt instruments

Portuguese government debt - 181,498

National public issuers

- Credit institutions

- Other bonds - 550,182

Non-residents

- Foreign public issuers - 200,924

- Other bonds - 1,408,380

- 2,340,984

Equity instruments - (158,838)

Net potential gains (Note 27) - 2,182,146

12. INVESTMENTS HELD TO MATURITY



Residents

- Portuguese government debt - 19,661,348

- Other - 5,395,819

Non-residents

- Public debt - 59,618,914

- Other - 14,634,792

- 99,310,873

Interest receivable - 2,591,989

- 101,902,862

The portfolio of Investments held to maturity of the Group essentially includes investment in Portuguese and other countries’ government debt, as broken down in note 43, being essentially composed of Spanish government debt in the amount of 55,911,456 euros and Italian government debt in the amount of 5,175,589 euros.

As at 31 December 2017, the fair value of investments held to maturity, including accrued interest, came to 114,595,970 euros (Note 43).

71

As at 31 December 2017, the breakdown of investments held to maturity, by maturity, was as follows:


One to five years - 22,729,768

More than five years - 79,173,094

- 101,902,862

In 2008, under the alteration to IAS 39 (Note 44), the Group transferred a set of securities that were recorded in the financial assets available for sale portfolio, as well as financial assets held for trading into the investments held to maturity portfolio. In addition, since 2010 the Bank has been acquiring a series of additional securities, within the scope of the internally defined investment policy.

13. NON-CURRENT ASSETS HELD FOR SALE



Real Estate 21,259,931 27,567,270

Impairment (Note 24) (6,275,798) (7,632,477)

14,984,133 19,934,793

Changes in this item in 2018 and 2017 are shown below:

2018


Impairment Use

Gross

Impairment Acquisitions Disposals Reinstatements / of Gross

Impairment Net

value

(Appropriations) Impairment value

value

(Note 24) (Note 24) (Note 24) (Note 24)

27,567,270 (7,632,477) 2,064,490 (8,371,829) (686,901) 2,043,580 21,259,931 (6,275,798) 14,984,133

2017


Impairment Use

Gross

Impairment Acquisitions Disposals Reinstatements / of Gross

Impairment Net

value

(Appropriations) Impairment value

value

(Note 24) (Note 24) (Note 24) (Note 24)

33,038,005 (7,931,998) 1,964,638 (7,435,373) (1,648,300) 1,947,821 27,567,270 (7,632,477) 19,934,793

72

As at 31 December 2018 and 2017, the breakdown of non-current assets held for sale is as follows, according to the date of acquisition by the Group:

2018 2017

Year of acquisition Gross Net Gross Net value

Impairment value value

Impairment value

prior to 2009 2,136,879 (546,038) 1,590,841 2,440,514 (796,521) 1,643,9932009 1,213,742 (575,222) 638,520 1,672,422 (698,204) 974,2182010 2,624,141 (1,255,749) 1,368,392 2,900,544 (1,241,729) 1,658,8152011 1,785,529 (684,215) 1,101,314 3,807,995 (1,465,872) 2,342,1232012 2,212,862 (1,037,131) 1,175,731 3,567,041 (1,545,672) 2,021,3692013 3,581,161 (836,322) 2,744,839 4,885,894 (927,818) 3,958,0762014 1,134,469 (70,530) 1,063,939 1,706,263 (92,260) 1,614,0032015 1,252,920 (286,663) 966,257 1,856,423 (330,843) 1,525,5802016 1,817,782 (185,988) 1,631,794 2,573,426 (69,558) 2,503,8682017 1,938,763 (711,111) 1,227,652 2,156,748 (464,000) 1,692,7482018 1,561,683 (86,829) 1,474,854 - - -

21,259,931 (6,275,798) 14,984,133 27,567,270 (7,632,477) 19,934,793

The real estate held in portfolio for more than 1 year corresponds to real estate that in spite of the commercial efforts undertaken by the Group to proceed with its immediate sale, has still not been sold, due mainly to the current climate of the real estate market. The Bank continues to focus its efforts on selling the real estate in the short-term.

During 2018, the Group recorded net gains from the sale of real estate received in lieu of payment, totalling 1,426,082 Euros (2017: net gains of 324,973 euros) (Note 38), which were determined in some situations relative to the gross value of the real estate.

14. INVESTMENT PROPERTIES



Gross value 5,389,235 5,320,851

Accumulated depreciation and impairment losses (Note 24) (1,268,135) (1,307,751)

4,121,100 4,013,100

As at 31 December 2018 and 2017, the balance of this item corresponds to real estate which has been rented by the Group and for which there are no prospects of selling in the short term. On these dates the Group has registered an impairment of 1,268,135 euros (in 2017: 1,307,751 euros), arising from the updating of the assessments for these assets (Note 24).

Investment properties are recorded at acquisition cost, less accumulated depreciation and impairment losses. As at 31 December 2018 and 2017, the Group did not record depreciation for the year due to the fact that all real estate presented a valuation value lower than its acquisition value less depreciation that would be calculated from the date of its acquisition until 31 December 2018. For the same reason, the balance sheet value of this real estate is similar to its fair value which at 31 December 2018 corresponds to 4,787,900 euros (31 December 2017: 4,604,450 euros).

During 2018 and 2017 the value of investment property rents charged by the Group came to 405,309 euros and 362,303 euros, respectively.

73

15. OTHER TANGIBLE ASSETS

Changes in the “Other tangible assets” items during 2018 and 2017 were as follows:

2018

31 December 2017

Description

Gross Accumulated Acqusitions

Depreciation Transfers

Disposals and write-offs Net value

value depreciation for the year Gross value Depreciation 31-12-2018

Real estate:

- Premises 705,226 (228,043) - (10,302) - - - 466,881

- Leasehold

expenses 2,723,538 (2,037,326) 105,448 (208,067) 29,806 (6,544) 6,544 613,399

3,428,764 (2,265,369) 105,448 (218,369) 29,806 (6,544) 6,544 1,080,280

Equipment:

- Furniture and materials 460,283 (390,993) 11,961 (19,685) - - - 61,566

- Machines and tools 88,956 (59,907) 705 (7,844) - (19,956) 19,848 21,802

- IT equipment 921,496 (792,193) 131,623 (101,805) - (204,872) 204,624 158,873

- Fixtures and fittings 581,991 (558,089) 2,924 (17,031) - (26,161) 26,129 9,763

- Vehicles 1,874,175 (960,118) 343,448 (440,626) - - - 816,879

- Safety equipment 25,314 (22,780) - (981) - (15,736) 15,736 1,553

3,952,215 (2,784,080) 490,661 (587,972) - (266,725) 266,337 1,070,436

Other tangible assets:

- Artistic assets 41,364 - - - - - - 41,364

- Under construction 8,942 - 106,037 - (29,806) - - 85,173

7,431,285 (5,049,449) 702,146 (806,341) - (273,269) 272,881 2,277,253

2017

31 December 2016

Description

Gross Accumulated Acquisitions

Depreciation Disposals and write-offs Net value

value depreciation for the year Gross value Depreciation 31-12-2017

Real estate:

- Premises 859,592 (217,741) - (10,302) (154,366) - 477,183

- Leasehold expenses 2,753,495 (1,865,854) 8,469 (209,898) (38,426) 38,426 686,212

3,613,087 (2,083,595) 8,469 (220,200) (192,792) 38,426 1,163,395

Equipment:

- Furniture and materials 479,761 (395,403) 6,241 (21,309) (25,719) 25,719 69,289

- Machines and tools 79,596 (63,872) 21,023 (7,698) (11,663) 11,663 29,049

- IT equipment 955,509 (795,401) 55,420 (86,225) (89,433) 89,433 129,303

- Fixtures and fittings 613,848 (550,767) 3,916 (43,097) (35,773) 35,775 23,902

- Vehicles 1,720,334 (573,045) 167,513 (400,745) (13,672) 13,672 914,057

- Safety equipment 25,314 (21,799) - (981) - - 2,534

3,874,362 (2,400,287) 254,113 (560,056) (176,260) 176,262 1,168,135

Other tangible assets:

- Artistic assets 41,364 - - - - - 41,364

- Under construction - - 8,942 - - - 8,942

7,528,813 (4,483,882) 271,524 (780,256) (369,052) 214,688 2,381,835

74

16. INTANGIBLE ASSETS

Changes in the “Intangible assets” items during 2018 and 2017 were as follows:

2018

31 December 2017 Disposals and write-offs

Descripton


Amortisations Net value

value amortisations Transfers Gross value

Amortisations

for the year 31-12-2018

Intangible assets

Software 2,359,188 (2,145,250) 32,798 119,508 (63,425) 63,425 (139,038) 227,206

Intangible assets in progress 104,794 - 92,604 (119,508) - - - 77,890

2,463,982 (2,145,250) 125,402 - (63,425) 63,425 (139,038) 305,096

2017

31 de December de 2016 Disposals and write-offs

Descripton


Amortisations Net value

value amortisations Transfers Gross value

Amortisations

for the year 31-12-2017

Intangible assets

Software 2,332,395 (2,001,233) 33,017 - (6,224) 6,224 (150,241) 213,938

Intangible assets in progress 36,104 - 68,690 - - - - 104,794

2,368,499 (2,001,233) 101,707 - (6,224) 6,224 (150,241) 318,732

17. INCOME TAX

The asset and liability balances by income tax as at 31 December 18 and 2017 were as follows:

2018 2017

Deferred tax assets

- By temporary differences 7,378,470 7,148,582

Deferred tax liabilities

- By temporary differences (241,127) (585,097)

7,137,343 6,563,485

Current tax assets and liabilities

- Tax assessed (922,081) (1,065,738)

- Tax benefit 929,039 -

- Surcharge (65,863) (72,187)

- State surcharge - (99,375)

- Autonomous taxation (125,655) (130,562)

(184,560) (1,367,862)

Payments on account 715,391 1,114,751

Tax withheld at source 74,479 102,093

789,870 1,216,844

Income tax (payable) / receivable 605,310 (151,018)

Of which:

- Income tax receivable 677,655 -

- Income tax (payable) (72,345) (151,018)

75

Current tax is calculated based on taxable income for the year, which differs from the accounting result due to adjustments to taxable income arising from costs or earnings not relevant for tax purposes, or which will only be considered in other reporting periods. The main situations that generate such adjustments are related with the Banking Sector Contribution and the difference between credit impairments and the relevant values for tax purposes.

Within the scope of article 28-C of the Corporate Income Tax Code, as of the financial year of 2017, of Regulating Decree no. 11/2017, of 28 December, among others, (i) impairment losses and other value adjustments for specific risk that exceed the value that corresponds to the application of the mandatory minimum limits established in Bank of Portugal Notice no. 3/95 as amended prior to its respective revocation by Bank of Portugal Notice no. 5/2015 for the provisions for specific credit risk, and (ii) impairment losses and other value adjustments relative to credits covered by rights in rem in immovable property, are not accepted as tax deductible for the year. As previously mentioned, the portfolio of loans granted is now subject to the constitution of impairment losses which replaces the recording of provisions for specific risk and for general credit risk and for country-risk, even though for tax purposes provisions are still considered, except in the cases indicated above.

In 2018, the Bank acquired 2,955 investment units of the Fundo IBERIS BLUETECH FUND, for the amount of 2,999,325 euros, having obtained an immediate gain of 929,039 euros and having generated a deferred tax of 1,542,804 euros.

The breakdown of changes in deferred taxes in 2018 and 2017 was as follows:

2018

Balance as at Change in Change in Balance as at

31-12-2017 income reserves Other 31-12-2018

Deferred tax assets

- Differential between impairment losses on loans accepted

for tax purposes and those registered by the Bank 6,004,946 (1,117,134) - - 4,887,812

- Financial assets available for sale 50,471 - 249,522 - 299,993

- Valuation of trading derivatives - - - - -

- Impairment of securities 548,441 (331,104) - (61,849) 155,488

- Impairment of non-current assets held for sale 544,724 (52,351) - - 492,373

Tax benefit - 1,542,804 - - 1,542,804

7,148,582 42,215 249,522 (61,849) 7,378,470


- Financial assets available for sale (585,097) - 343,970 - (241,127)

6,563,485 42,215 593,492 (61,849) 7,137,343

2017

Balance as at Change in Change in Balance as at

31-12-2016 income reserves Other 31-12-2017

Deferred tax assets

- Differential between impairment losses on loans accepted

for tax purposes and those registered by the Bank 6,315,162 (310,216) - - 6,004,946

- Financial assets available for sale 224,628 - (174,157) - 50,471

- Valuation of trading derivatives 1,973 (1,973) - - -

- Impairment of securities 1,177,365 (298,195) - (330,729) 548,441

- Impairment of non-current assets held for sale 470,496 (2,918) - 77,146 544,724

8,189,624 (613,302) (174,157) (253,583) 7,148,582


- Financial assets available for sale (1,445,948) - 675,451 185,400 (585,097)

6,743,676 (613,302) 501,294 (68,183) 6,563,485

76

In 2014, the Bank adopted the special scheme applicable to deferred tax assets (REAID). The scheme, approved by Law no. 61/2014, of 26 August, covers the deferred tax assets arising from the non-deduction of expenses and negative variations in net worth resulting from credit impairment losses and post-employment or long-term employment benefits, being applicable to realities of this nature accounted for in fiscal years beginning on or after 1 January 2015, as well as to deferred tax assets that are recorded in the annual accounts as at 31 December 2014. According to Law no. 23/2016, of 19 August, this special scheme is not applicable to expenses and negative variations in net worth accounted for in fiscal years beginning on or after 1 January 2016, as well as to deferred tax assets associated to the latter.

The deferred tax assets arising from the non-deduction of expenses and negative variations in net worth resulting from credit impairment losses and post-employment or long-term employment benefits are converted into tax credits when the taxpayer records a negative net income in its annual accounts, after being approved by the governing bodies, in compliance with applicable legislation, or in the event of liquidation by voluntary dissolution, insolvency ordered by court decision or, when applicable, its authorisation for the exercise of the activity is revoked by the competent supervisory authorities. In a scenario of conversion arising from a negative net income, the amount of tax credit to be attributed will result from the proportion between the negative net income for the year and the total equity of the taxpayer (determined prior to the deduction of that result), applied to the eligible balance of the deferred tax assets. When the conversion arises from liquidation or insolvency or the taxpayer presents a negative equity, the conversion of the deferred tax assets into tax credit is conducted at full value.

The conversion into tax credit (not due to liquidation or insolvency) requires the creation of a special reserve in the amount of the respective credit increased by 10%, jointly with the issue of securities in the form of conversion rights to be assigned to the State. The exercise of the conversion rights results in the increase of the share capital of the taxpayer due to incorporation of the special reserve and the issue of new ordinary shares to be delivered to the State free of charge.

Regarding the deferred tax assets covered by REAID, their future deductibility is limited, in each financial year, to the value of the taxable profit calculated prior to the deduction of those expenses and negative variations in net worth, i.e. the deduction undertaken given that the conditions for the tax deductibility of those expenses and negative variations in net worth are met does not apply if it results in a tax loss or it only applies in proportion to the value required to obtain a nil tax result.

Given that a positive net income for the year was recorded in 2018 and 2017, there was no conversion of eligible assets into tax credit in the current financial year.

Tax costs recorded in profit and loss and the tax burden, measured by the relation between allocation for tax and the profit for the year before tax, is as follows:

2018 2017

Current taxes

For the year (291,170) (1,367,862)

Corrections from previous years - -

(291,170) (1,367,862)

Deferred taxes

Entry and reversal of temporary differences 42.,215 (613,302)

Total tax recognised in profit or loss (248,955) (1,981,164)

Income before taxes and non-controlling interests 9,336,246 7,829,368

Tax burden 2.67% 25.30%

Pursuant to current legislation, tax returns are subject to review and correction by the tax authorities for a period of four years, except for financial years in which tax losses are carried forward, in which case the expiration period is the end of the period for which that right exists. In this way, therefore, the tax returns of the Bank for the years 2015 to 2018 are still subject to review and the taxable amount may be corrected.

However, The Bank’s Board of Directors does not think that there will be any correction with a significant impact on the financial statements as at 31 December 2018.

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The reconciliation between the nominal and effective rate of tax in 2018 and 2017 is given below:

2018 2017

Rate Tax Rate Tax

Income before taxes 9,336,246 7,829,368

Tax at nominal rate 22.50% 2,100,655 22.50% 1,761,608

State surcharge 0.83% 77,080 1.27% 99,375

2,177,735 1,860,983

Impairment not accepted for tax purposes (11.98%) (1,118,228) 0.74% (57,894)

Costs not accepted for tax purposes:

- Write-ups 0.19% 17,765 0.19% 14,959

Tax benefits (10.01%) (934,704) 0.06% (4,649)

Gains and losses 0.00% - 0.01% 675

Autonomous taxation 1.35% 125,655 1.67% 130,562

Banking sector contribution 0.52% 48,250 0.69% 54,247

Other (0.72%) (67,518) 0.23% (17,719)

2.67% 248,955 25.30% 1,981,164

18. OTHER ASSETS



Debtors and other financial investments

Debtors by transactions on futures 1,767,862 3,892,049

Other sundry debtors 208,501 122,994

Impairment sundry debtors (83,423) (20,574)

1,892,940 3,994,469

Other

Gold and other precious metals 159,066 178,693

Income receivable

Commissions 1,147,506 990,249

Deferred charges

Rents 85,904 89,191

Insurance 44,465 186,805

Other 407,579 213,314

537,948 489,310

Other accruals and deferrals

Stock market transactions pending settlement 249,169 3,081,841

Lending operations pending settlement 1,992,449 378,448

2,241,618 3,460,289

5,979,078 9,113,010

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The margin accounts of futures contracts of customers and of the Bank are included in the “Debtors by transactions on futures” item.

As at 31 December 18 and 2017, “Stock market transactions pending settlement” reflect transactions carried out on behalf of third parties, financial settlement of which took place after the balance sheet date. The change in “Stock market transactions pending settlement” is essentially due to the fact that the Bank initiated the activity of Telemarketing insurance solicitation associated to auto loans.

19. RESOURCES FROM CENTRAL BANKS

As at 31 December 2018 and 2017 this item was made up as follows: 31 December 2018 31 December 2017

Resources from the Bank of Portugal 56,680,000 39,180,000

56,680,000 39,180,000

As at 31 December 2018 and 2017, “Resources from Bank of Portugal” corresponds to resources obtained by discounting securities at the European Central Bank.

As at 31 December 2018 and 2017, the times to maturity of resources obtained from the Bank of Portugal are as follows:


Up to three months 17,500,000 -

More than one year 39,180,000 39,180,000

56,680,000 39,180,000

Resources obtained from the Bank of Portugal as at 31 December 2018 and 2017 are secured by a chattel mortgage on the Bank’s own securities portfolio (Note 28).

20. RESOURCES FROM OTHER CREDIT INSTITUTIONS

As at 31 December 2018 and 2017, this item was made up of term deposits and resources from other credit institutions as follows:


Term deposits and other resources

Credit institutions in Portugal 1,775,690 2,951,525

1,775,690 2,951,525

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21. RESOURCES FROM CUSTOMERS AND OTHER LOANS



Deposits:

- Demand 99,120,457 89,610,093

With agreed maturity dates:

- Term deposits 426,065,655 324,188,265

- Structured deposits 54,764,787 37,140,865

480,830,442 361,329,130

579,950,899 450,939,223

Interest payable:

- Interest on customer resources 3,420,397 2,332,352

583,371,296 453,271,575

Under the terms of the law, the Deposit Guarantee was established to guarantee the reimbursement of funds deposited in Financial Institutions. The criteria that apply to the calculation of the annual contributions to said Fund are defined in Bank of Portugal Notice no. 11/94.

As at 31 December 2018 and 2017, the times to maturity of customers’ resources are as follows:


Up to three months 107,650,764 79,899,328

Three months to one year 267,015,764 203,312,600

One to five years 82,083,915 42,437,202

More than five years 24,079,999 35,680,000

480,830,442 361,329,130

22. LIABILITIES REPRESENTED BY SECURITIES



Debt securities - Customers 213,524 -

Interest payable 1,096 -

214,620 -

The liabilities represented by securities correspond to a 7-month debt security, without guaranteed capital. The product mentioned is directed at all investors (professionals and non-professionals of level 3).

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23. FINANCIAL LIABILITIES HELD FOR TRADING

As at 31 December 2018 and 2017, this item relates to derivatives recorded at fair value offset against profit and loss (Note 9) and is broken down as follows:


Interest rate swaps 27,610 220,298

Options 983,106 1,618,430

1,010,716 1,838,728

24. PROVISIONS AND IMPAIRMENT

Changes in Banco Invest’s provisions and impairment during 2018 and 2017 were as follows:

2018

Balances as at Net Transation Balances as at 31-12-2017 Charges Use Transfers adjustment 31-12-2018

Impairment of assets at amortised cost:

- Loand and advances to customers (Note 7) 28,483,680 (490,832) (1,884,852) 102,875 105,610 26,316,481

- Debt securities (Note 8) 299,347 159,337 - (46,516) 48,564 460,732

28,783,027 (331,495) (1,884,852) 56,359 154,174 26,777,213

Impairment and provisions for other financial assets:

- Impairment of financial assets available for sale (Note 11) 4,213,505 - (4,213,505) - - -

Impairment of financial assets at fair value through other comprehensive income (Notes 10 and 27): - 173,909 - (54,319) 54,311 173,901

Impairment of other assets:

- Non-current assets held for sale (Note 13) 7,632,478 686,900 (2,043,580) - - 6,275,798

- Investment properties (Note 14) 1,307,751 (39,616) - - - 1,268,135

- Other assets (Note 18) 20,574 62,849 - - - 83,423

8,960,803 710,133 (2,043,580) - - 7,627,356

Other provisions:

- Provisions for guarantees and other commitments - 24,723 - - - 24,723

41,957,335 577,270 (8,141,937) 2,040 208,485 34,603,193

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2017

Balances as at Net Transfers and Balances as at 31-12-2016 charges Use settlements 31-12-2017

Impairment of loans and advances to customers:

- Credit extended (Note 7) 28,412,726 568,449 (497,795) - 28,483,680

- Loans and advances to customers - debt securities (Note 8) 353,796 (54,225) (224) - 299,347

28,766,522 514,224 (497,719) - 28,783,027

Impairment of financial assets available for sale (Note 11) 4,580,093 668,928 (1,029,772) (5,744) 4,213,505)

Impairment in investments held to maturity (Note 12) - - - - -

Impairment of other assets:

- Non-current assets held for sale (Note 13) 7,931,998 1,648,300 (1,379,430) (568,391) 7,632,478

- Investment properties (Note 14) 992,161 - (252,801) 568,391 1,307,751

- Other assets (Note 18) - 20,574 - - 20,574

42,270,774 2,852,026 (3,159,722) (5,744) 41,957,335

The column “Transition adjustment” reflects the adjustments in impairment losses arising from the implementation of IFRS 9 with reference to 1 January, according to Note 46.

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25. OTHER LIABILITIESS



Creditors and other resources

- Creditors by operations on futures 999,063 1,890,592

Public Administration Sector:

- Tax withheld at source 588,184 540,278

- VAT payable 128,929 136,963

- Social Security contributions 183,780 153,575

- Advances on account, third parties 2,276 5,463

Sundry creditors:

- Other creditors 8,998,276 2,818,440

10,900,508 5,545,311

Deferred income

- Rents 34,080 30,260

- Commissions 506,967 -

541,047 30,260

Charges payable

Personnel costs:

- Holiday pay and allowance 1,452,825 1,017,290

- General administrative costs 35,846 40,770

- Other 211,469 128,262

1,700,140 1,186,322

Other accruals and deferrals

- Stock market transactions pending settlement 233,944 5,698,510

- Other transactions pending settlement 2,414,238 1,812,968

2,648,182 7,511,478

15,789,877 14,273,371

The margin accounts of futures contracts of customers are carried against the “Debtors by transactions on futures” item.

The “Other creditors” item includes the insurance premium values relative to auto loans payable to the insurance companies in the amount of 1,069,565 euros (31 December 2017: 768,507 euros).

The “Stock market transactions pending settlement” item reflects transactions carried out on behalf of third parties, financial settlement of which took place after the balance sheet date.

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26. SHARE CAPITAL

As at 31 December 2018 and 2017, the Bank’s shareholder structure is as follows:


Number Number

Entity of shares Amount % of shares Amount %

Alves Ribeiro - IF, SGPS, S.A. (Ordinary Shares) 9,461,500 47,307,500 79.51% 9,413,008 47,065,040 79.10%

Alves Ribeiro - IF, SGPS, S.A. (Preferential Shares) 2,400,000 12,000,000 20.17% 2,400,000 12,000,000 20.17%

Other 38,500 192,500 0.32% 86,992 434,960 0.73%

11,900,000 59,500,000 100% 11,900,000 59,500,000 100%

As at 2 December 2008 the Bank carried out a share capital increase, through the issue of 2,400,000 redeemable preferential shares at the nominal value of 5 euros each, having been subscribed and fully paid up by the shareholder Alves Ribeiro – Investimentos Financeiros, SGPS, S.A.

The redeemable preferential shares without a set date may pay priority dividends to be deliberated at the General Meeting, which correspond to 7% of their nominal value. This dividend may only be paid if there are distributable funds according to the applicable regulations and if their payment does not imply the Bank’s non-fulfilment of capital requirements. The priority dividend shall be paid annually in arrears on 30 June of each year.

In 2016, the minority shareholder of the Bank sold 1,000 shares of a nominal value of 5,000 euros to Alves Ribeiro – IF, SGPS, S.A., which now has a shareholding of 99.27%.

In 2018, the minority shareholder of the Bank sold 48,492 shares of a nominal value of 242,460 euros to Alves Ribeiro – IF, SGPS, S.A., which now has a shareholding of 99.68%.

27. RESERVES, RETAINED EARNINGS AND NET INCOME FOR THE YEAR

As at 31 December 2018 and 2017, the breakdown of the reserves and retained earnings items is as follows:


Revaluation reserves

- Reserves arising from fair value valuation

Of financial assets at fair value through other comprehensive income (Note 10) (240,283) 2,182,146

- Reserves for deferred taxes

Of financial assets available for sale 58.866 (534.626)

(181.417) 1.647.520

Legal reserve 5,797,462 5,297,392

Free reserve 10,343,420 6,492,951

Merger reserve 574,220 574,220

Retained earnings 26,808,127 26,118,842

43.523.229 38.483.405

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Revaluation reserves

Fair value reserves

The fair value reserve reflects the potential gains and losses in financial assets at fair value through other comprehensive income (Note 10), net of the corresponding tax (Note 17). The change, during 2018 and 2017, in the fair value reserve is analysed as follows.

Change in Fair Value

Balance 31 Acquisition Change in Disposal Balance 31

December 2017 Fair Value December 2018

Miscellaneous bonds 1,958,562 (451,011) (4,885,202) 2,600,363 (777,288)

Public debt securities 382,422 275,220 (63,724) (230,814) 363,104

Investment units (158,838) - - 158,838 -

Net potential gains (Note 10) 2,182,146 (175,791) (4,948,926) 2,528,387 (414,184)

(2,596,330)

Miscellaneous bonds - 82,152 (8) - 82,144

Public debt securities - 91,757 - - 91,757

Provisions and impairment (Note 24) - 173,909 (8) - 173,901

2,182,146 (1,882) (4,948,934) 2,528,387 (240,283)

(2,422,429)

Change in Fair Value

Balance 31 Acquisition Change in Disposal Balance 31

December 2016 Fair Value December 2017

Shares (304,146) - - 304,146 -

Miscellaneous bonds 2,644,624 153,744 875,586 (1,715,392) 1,958,562

Public debt securities 2,315,873 298,147 2,079 (2,233,677) 382,422

Investment units (428,108) - 269,270 - (158,838)

Net potential gains (Note 11) 4,228,243 451,891 1,146,935 (3,644,923) 2,182,146

(2,046,097)

Legal reserve

Under current legislation, the Bank must allocate a sum of not less than 10% of net profits for each year to the constitution of a legal reserve, up to a limit equal to the value of the share capital or to the sum of the free reserves and the retained earnings, if greater. The legal reserve cannot be distributed, except in the event that the Bank is wound up, and may only be used to increase share capital or offset losses, once other reserves have been used up.

Free reserve

By deliberation of the General Meeting held on 2 July 2018, the Bank distributed free reserves in the amount of 840,000 euros to the shareholder Alves Ribeiro - IF, SGPS, S.A., as holder of the redeemable preferential shares, which corresponds to 7% of the nominal value of the respective shares.

Credit reserve

Due to the revocation of Notice 3/95 of the Bank of Portugal, in which provisions ceased and impairment losses were now set up, this situation generated a credit reserve of 8,628,717 euros. The value reflects the changeover of the credit provisions to credit impairments.

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Merger reserve

The deed of merger by incorporation of Probolsa – Sociedade Corretora S.A. (Probolsa) into the Bank was executed on 22 December 2004. In the wake of this process, the merged company was wound up and all its rights and obligations were transferred to the Bank. For accounting purposes, the merger took effect on 1 January 2004, with the Probolsa assets and liabilities having been transferred to the Bank on the basis of their net book value as at that date. The difference between the accounting value of assets and liabilities transferred and the book value of the Bank’s shareholding in Probolsa was recorded in the “Merger reserve” item. This reserve cannot be distributed, except in the event that the Bank is wound up and may only be used to increase share capital or offset losses, once other reserves have been used up.

Retained earnings

As at 31 December 2018, the Retained earnings item includes the adjustment of the transition of IFRS 9, in the amount of 107,189 euros, according to Note 46.

Net income for the year

In 2018 and 2017, the breakdown of the consolidated net income of the Bank was as follows:

31 December 31 December 2018 2017

Individual net income:

- Banco Invest 13,745,535 5,000,697

- Invest Gestão de Activos 249,189 189,843

- AR Finance 1, PLC - -

- AR Finance 1, FTC - -

- Fundo Tejo 458,165 451,269

- Saldanha Holdings (102,361) (18,913)

- Saldanha Finance (28,074) (24,911)

14,322,454 5 597,985

Adjustments:

- Annulment of the increase in value of Properties of Fundo Tejo (56,965) (77,354)

- Annulment of dividends received by the Bank (5,200,000) -

Other adjustments:

- Annulment of impairment Fundo Tejo - 30,200

- Reclassification of annulment of ID related to AR Finance - 544,736

- Settlement of securitisation operation - (165,747)

- Other adjustments 21,802 (81,616)

Income before taxes and non-controlling interests 9,087,291 5,848,204

Income attributable to minority interests - (54,610)

Consolidated net income for the year 9,087,291 5,793,594

As of 1 January 2016, following the publication of Notice 5/2015 of the Bank of Portugal, the Bank adopted the International Financial Reporting Standards as endorsed by the European Union in the preparation of its individual accounts.

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28. NON-CONTROLLING INTERESTS

As at 31 December 2018 and 2017, the balance of this item refers entirely to third-party shareholdings in the Fundo Especial de Investimento Imobiliário Fechado Tejo.

Changes in this item during 2018 and 2017 were as follows:

2018

Balances as at Net Balances as at 31 December 2017 income 31 December 2018

Fundo Especial de Investimento Imobiliário Fechado Tejo 967,258 54,216 913,042 2018

Balances as at Net Balances as at 31 December 2016 income 31 December 2017

Fundo Especial de Investimento Imobiliário Fechado Tejo 912,555 54,703 967,258

29. GUARANTEES AND OTHER COMMITMENTS

2018 2017

Guarantees and stand-by-letters of credit provided 101,456,200 95,224,417

Commitments to third parties 10,861,434 6,381,719

Amounts deposited 220,276,559 173,060,936

Assets under management and custody

- Wealth management 66,601,566 55,761,6333

The Bank provides custody, wealth management, investment management and advisory services which involve making buying and selling decisions regarding various types of financial instruments. For specific services rendered, objectives and yield levels for assets under management are established. These assets under management are not included in the financial statements.

The Assets under management and custody - Wealth management item includes the funds managed by Invest Gestão de Activos.

As at 31 December 2018 and 2017, contingent liabilities and commitments are recorded in off-balance sheet items and are broken down as follows:

2018 2017

Guarantees and stand-by-letters of credit provided

Guarantees and stand-by-letters of credit provided 2,906,621 2,373,480

Assets pledged as collateral 98,549,579 92,850,938

101,456,200 95,224,417

Assets under management and custody

Portfolio management 4,673,773 5,360,695

Fund management 61,927,793 50,400,938

66,601,566 55,761,633

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The “Assets pledged as collateral” item relates to securities delivered by the Bank as a guarantee of repurchase of funds pledged to Central Banks or Other Credit Institutions. As at 31 December 2018 and 2017, the total sum of this item corresponds to securities given as guarantee to the Bank of Portugal (Note 19).

Resolution Fund

Within the scope of a set of legislative changes which included the publication of Decree-Law 24/2013, the Resolution Fund (‘RF’) was created. The mission of this entity is to provide financial support to the resolution measures applied by the Bank of Portugal, as the national resolution authority, and to carry out all the other tasks entrusted by law within the scope of execution of such measures.

The following are participating institutions of the RF:- The credit institutions with registered office in Portugal (with the exception of the associated mutual agricultural credit

banks of the Central Mutual Agricultural Credit Bank); - The investment companies that undertake trading activities on own account of one or more financial instruments or the

underwriting and placement of financial instruments on a firm commitment basis;- The branches in Portugal of credit institutions authorised in countries that are not members of the European Union or that

do not belong to the European Economic Area;- The branches of Portugal of financial institutions authorised in countries that are not members of the European Union and

that undertake trading activities on own account of one or more financial instruments or the underwriting and placement of financial instruments on a firm commitment basis;

- The relevant companies for payment systems subject to the supervision of the Bank of Portugal.

Banco Invest is one of the participating entities of the RF. As provided for in Decree-Law 31-A/2012 which created the RF, the resources of the Resolution Fund come from the payment of the contributions due by the institutions participating in the Fund and from the contribution on the banking sector. In addition, it is also foreseen that when such resources prove to be insufficient to meet its obligations, other means of funding may be used, namely: (i) special contributions from credit institutions; and (ii) borrowed funds.

BES / Novo Banco

The Board of Directors of the Bank of Portugal decided, on 3 August 2014, to apply a resolution measure to Banco Espírito Santo, S.A. (“BES”), resulting in the transfer of the majority of the business and assets of BES to Novo Banco S.A. In line with the Community regulatory framework, the capitalisation of Novo Banco was ensured by the Resolution Fund.

Following the resolution measure applied to Banco Espírito Santo, S.A. (BES), in August 2014, the Bank of Portugal determined capital requirements of Novo Banco, S.A. to the value of 4,900 million euros, which were to be met by the Resolution Fund under existing legislation. Considering that the Resolution Fund only had own resources of approximately 377 million euros, the subscription of capital was made via two loans:• 3,900 million euros from the Portuguese State; and • 700 million euros from eight participating institutions in the Fund (not including the Bank)..

Based on the exceptional nature of the resolution measure, and the need for the RF to have the necessary funds to implement said measure, the Management Commission of the RF, at a meeting held on 3 August 2014, decided to submit to the Ministry of Finance a proposal for the financing of that measure which foresaw (i) the obtainment of a loan granted by the State of 4,400 million euros, (ii) the collection of a special contribution from the participating institutions of the Fund, in the amount of 135 million euros, and (iii) the use of the RF’s own resources, in the amount of 365 million euros.

However, a number of participating institutions of the RF expressed their willingness to, within a short period, grant a loan to the Fund, which permitted reducing the amount of the State loan by 500 million euros, replace the special contribution initially foreseen and provide the Fund with the means to cover the first interest payments due of the State loan. Subsequently, the Management Commission of the RF decided that the previous financing request submitted to the Ministry of Finance should be revised and that, alternatively, a State loan in the amount of 3,900 million euros should be requested.

In summary, the financial support granted by the RF for the paying-up of the share capital of Novo Banco, S.A., in the amount of 4,900 million euros resulted from:• A loan granted by the State in the amount of 3,900 million euros; • A loan granted by a group of participating credit institutions of the RF (Caixa Geral de Depósitos, S. A., Banco Comercial

Português, S. A., Banco BPI, S. A., Banco Santander Totta, S. A., Caixa Económica Montepio Geral, Banco Popular, S. A., Banco BIC Português, S. A. and Caixa Central do Crédito Agrícola Mútuo, CRL), in the amount of 700 million euros; and

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• Mobilisation of 365 million euros corresponding to available resources of the Fund, namely relative to revenue from contributions that have so far been paid by the financial sector, including the proceeds of the banking sector contribution.

In the interim, with the conclusion of the sales process of the shares held by the RF in Novo Banco, S.A. in October 2017, Lone Star, through the injection of 1 billion euros, acquired a 75% stake, with the RF maintaining the remaining 25% of the share capital.

The conditions agreed in the sales process of Novo Banco, S.A. also included a contingent capital mechanism, under which the Resolution Fund undertakes to make payments to Novo Banco, S.A. if certain cumulative conditions materialise, related to: i) the performance of a specific portfolio of assets and ii) the capital levels of the bank going forward.

The Resolution Fund announced that the amount to be paid to Novo Banco in 2019 and 2018 by the Resolution Fund, relative to the accounts of 2018 and 2017, came to 1,149 million euros and 792 million euros, respectively.

Banif – Banco Internacional do Funchal, S.A.

The Board of Directors of the Bank of Portugal deliberated, on 19 December 2015, the application of a resolution measure to Banif – Banco Internacional do Funchal, S.A (“Banif”), within the scope of which most of the activity of Banif and the majority of its assets and liabilities - with the exception of the assets identified as problematic that were transferred to an asset management vehicle called Oitante, S.A. (Oitante), created specifically for that purpose, and whose sole shareholder is the Resolution Fund - were transferred to Banco Santander Totta. To that end, Oitante issued bonds representative of the debt of this vehicle, amounting to 746 million euros, which were acquired in full by Banco Santander Totta, with a guarantee of the Resolution Fund and a counter-guarantee of the Portuguese State having been provided.

The operation involved an estimated amount of 2,255 million euros of public funds to cover future contingencies, of which 489 million euros was financed by the Resolution Fund and 1.766 million euros directly by the Portuguese State. The mentioned state support is deducted of the amount owed by Banco Santander Totta for the acquisition of the pool of assets, liabilities and activity of the former Banif. The 489 million euros secured by the Resolution Fund were financed through a State loan.

General aspects

To repay the loans received and other liabilities it may be required to assume relative to the abovementioned resolution measures, the Resolution Fund is financed by from the periodic and special contributions of the participating institutions (including the Bank) and from the contribution on the banking sector. Under article 153-I of Decree-Law 345/98, of 9 November, if the resources of the Resolution Fund are insufficient to meet its obligations, participating institutions may be called upon, via a separate statute, to make special contributions. The amounts, instalments, deadlines and other terms of those contributions shall also be defined by said statute.

Within the context of the entry into force of the Single Resolution Fund (Decree-Law 23-A/2015, of 26 March), the periodic and special contributions made are intended to safeguard obligations undertaken, or to be undertaken, by the Resolution Fund following the resolution measures adopted until 31 December 2014.

In a press release of 28 September 2016, the Resolution Fund announced that it reached an agreement with the Ministry of Finance to review the loan of 3,900 million euros originally granted by the State to the Resolution Fund in 2014 to finance the resolution measure applied to BES. According to the Resolution Fund, the extension of the maturity of the loan aimed to ensure its capacity to meet its obligations through its regular income, regardless of the contingencies that the Resolution Fund is exposed to. That same day, the Minister of Finance’s Office also announced that increases in liabilities arising from the materialisation of future contingencies will determine the adjustment of the maturity of the loans of the State and of the Banks of the Resolution Fund, in order to maintain the contributory effort required from the banking sector at current levels.

According to the press release of the Resolution Fund of 21 March 2017:• “The conditions of the loans obtained by the Fund for the financing of the resolution measures applied to Banco Espírito

Santo, SA and Banif - Banco Internacional do Funchal, SA have been changed.” These loans amount to 4,953 million euros, of which 4,253 million euros were granted by the Portuguese State and 700,000 thousand euros were granted by a syndicate of banks.

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• “Those loans are now due in December 2046, without prejudice to the possibility of early repayment based on the use of revenues from the Resolution Fund. The maturity will be adjusted so as to guarantee the ability of the Resolution Fund to fully meet its obligations based on regular income and without the need for special contributions or any other extraordinary contributions.”

• “The review of the loan conditions aimed to ensure the sustainability and financial balance of the Resolution Fund, based on a stable, predictable and affordable cost for the banking sector”.

• “The new conditions allow for full payment of the Resolution Fund’s liabilities and their remuneration, without the need for special contributions or any other extraordinary contributions from the banking sector”.

On the date of approval of these financial statements, the Bank does not have information that allows it to reliably estimate the effects on the Resolution Fund arising from the sale of the shareholding in Novo Banco, S.A. or of the various contingent liabilities undertaken by the Fund.

Notwithstanding the possibility provided for in applicable legislation for the collection of special contributions, given the recent developments regarding the renegotiation of the conditions of the loans granted to the Resolution Fund by the Portuguese State and by a syndicate of banks, CEMG included, and the public announcements made by the Resolution Fund and by the Minister of Finance which state that this possibility will not be used, the financial statements, as at 31 December 2018, reflect the expectation of the Bank’s Board of Directors that the institutions participating in the Resolution Fund will not be required to make special contributions or any other extraordinary contributions to finance the resolution measures applied to BES and Banif.

30. INTEREST AND SIMILAR INCOME

In 2018 and 2017 this item was made up as follows:

2018 2017

Interest from deposits at Central Banks and at credit institutions 143,642 3,714

Interest from investments in credit institutions 475 1,145

Interest from loans and advances to customers

- Domestic loans 16,126,417 9,519,445

- Foreign loans 3,676 8,145

- Other loans and receivables - debt securities 6,008,535 1,921,195

Interest from past due loans 1,223,032 1,236,249

Interest from financial assets held for trading - Securities 914,009 573,465

- Derivatives 251,653 301,862

Interest from financial assets at fair value through other comprehensive income

- Securities 952,788 -

Interest from financial assets available for sale

- Securities - 2,909,003

Interest from securitised assets not derecognised - 315,412

Interest from investments held to maturity - 3,853,195

Interest from debtors and other financial investments 58,310 15,558

Other interest and similar income 103,845 43,694

Comissions received associated to amortised cost - Credit operations 1,546,413 619,555

27,332,795 21,321,637

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The change in the “Commissions associated to amortised cost” item corresponds to the commissions and other earnings recorded according to the effective interest rate method as referred to in the accounting policies (Note 2), including the effect of the business related to auto loans which recorded a significant increase over the course of 2018 and 2017.

The Interest from loans and advances to customers item includes the amount of 3,271,168 euros (31 December 2017: 1,314,611 euros) relative to earnings from customers with impairment signs, with reference to 1,935,937 euros (31 December 2017: 1,186,174 euros) of past due interest and 55,844 euros (2017: 128,437 euros) of accrued interest.

The Interest from financial assets held for trading - Derivatives item includes the amount of 100,721 euros relative to the interest from the swap of the Fundo Inspirar.

31. INTEREST AND SIMILAR CHARGES


2018 2017

Interest on resources from central banks 603 1,626

Interest on resources from other credit institutions

- Abroad 46,835 29,378

Interest on resources from customers and other loans 4,617,749 3,596,906

Interest on financial liabilities for trading

- Derivatives - 20,038

Interest on liabilities resulting from assets not derecognised in securitisation operations - 391,710

Other commissions paid

- Commissions paid associated to amortised cost 2,251,989 848,496

6,917,176 4,888,154

The change in the “Commissions paid associated to amortised cost” item corresponds to the commissions and other costs recorded according to the effective interest rate method as referred to in the accounting policies (Note 2), including the effect of the business related to auto loans which recorded a significant increase over the course of 2018 and 2017.

The balance of the “Interest on liabilities resulting from assets not derecognised in securitisation operations” item corresponds to the interest paid to the Fundo de Titularização de Créditos AR Finance 1 FTC, within the scope of the transactions undertaken by the Bank. The securitisation operations ended during 2017.

32. INCOME FROM EQUITY INSTRUMENTS

In 2018, the balance of 70,917 euros corresponds to income from equity instruments held by non-residents.

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33. NET FEES AND COMMISSIONS INCOME


2018 2017

Services and commissions received

Guarantees provided 37,260 29,513

Services provided

- Deposit and custody of securities 1,322,675 1,046,440

- Management of securities 364,757 254,086

- Collection of securities 77,900 77,982

- Credit management commission - 56,559

- Setting up operations 40,600 13,985

- Transfer of securities 19,783 18,696

- Other services provided 1,951,503 843,347

Transactions carried out on behalf of third parties

- Brokerage commissions 561,429 596,275

- Other 34,966 35,874

- Other commissions received 3,232,708 2,872,463

7,643,581 5,845,220

Services and commissions paid

Banking services provided by third parties

- Bank commissions (403,310) (276,252)

- Charges on futures on behalf of third parties (14,990) (15,158)

- Bank of Portugal (11,712) (515)

- Transactions carried out on behalf of third parties (175,602) (141,199)

- Business procurement commissions (40,247) (3,739)

- Other commissions (11,619) (14,619)

(657,480) (451,482)

6,986,101 5,393,738

The “Other services provided” item includes commissions associated to auto loans in the amount of 730,172 euros (2017: 229,558 euros). The change in this item, as previously mentioned, is due to the increase observed in the concession of auto loans.

The “Credit management commission” item corresponds to the remuneration of the Bank for the management of the credits assigned to the Fundo de Titularização de Créditos AR Finance 1 FTC, under the terms of the credit management contract concluded with the fund. The change in the “Other commissions received” item during 2018 and 2017 is essentially due to the increase in the activity related to auto loans in the years indicated above. The “Bank commissions” item includes the commissions paid to Euroclear which came to 236,933 euros in 2018 (2017: 208,857 euros).

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34. GAINS / (LOSSES) IN FINANCIAL OPERATIONS AT FAIR VALUE THROUGH PROFIT OR LOSS


2018 2017

Income from assets and liabilities assessed at fair value through profit or loss

Securities

Issued by residents

- Bonds 156,531 62,558

- Shares 11,637 36,873


- Bonds 1,244,458 975,536

- Shares 1,479,658 2,376,437

- Investment units 68,021 92,106

Derivatives

Swaps

- Foreign currency swaps 1,118,907 -

- Interest rate swaps 403,167 132,680

Futures

- On interest rates 665,872 1,042,194

- On equities 934,642 1,506,011

- On foreign currencies 1,362,411 2,008,672

Options

- On equities 408,168 345,983

7,853,472 8,579,050

Losses from assets and liabilities assessed at fair value through profit or loss

Securities

Issued by residents

- Bonds (98,099) -

- Shares (4,472) (30,613)

- Investment units (1,285,860) -


- Bonds (2,674,405) (142,552)

- Shares (1,526,919) (1,781,043)

- Investment units (420,001) (3,462)

Derivatives

Swaps

- Foreign currency swaps - -

- Interest rate swaps (475,669) (209,092)

Futures

- On interest rates (630,401) (865,339)

- On equities (1,243,247) (1,461,604)

- On foreign currencies (1,515,466) (1,618,483)

Options

- On equities (130,145) (1,314,353)

(10,004,684) (7,426,542)

(2,151,212) 1,152,508

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The losses in Securities issued by residents – Investment Units refer essentially to losses associated to the investment units of Inspirar – Fundo Especial de Investimento Imobiliário Fechado which occurred during 2018. Within the scope of the application of IFRS 9, the investment units are classified in the portfolio of Financial Assets at fair value through profit or loss, according to Note 46.

35. EXCHANGE RATE GAINS / (LOSSES)

The balance for this item in 2018 and 2017 wholly corresponds to the income calculated in the revaluation of the forward positions in foreign currency carried by the Bank and is presented as follows:

2018 2017

Revaluation of the spot currency position 329,254 (468,282)

Revaluation of the forward currency position 1,838 (4,291)

331,092 (472,573)

36. INCOME FROM FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

In 2018 this item was made up as follows:

2018 2017

Debt instruments

Residents

- Other bonds 536,323 -

Non-residents

- Foreign public issuers 231,500 -

- Other bonds 652,825 -

Equity instruments

Residents

- Investment units (3,426) -

Non-residents

- Investment units (287,077) -

1,130,145 -

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37. NET GAINS / (LOSSES) FROM FINANCIAL ASSETS AVAILABLE FOR SALE

In 2017 this item was made up as follows:

2018 2017

Debt instruments

Residents

- Other bonds - 669,305

Non-residents


- Other bonds - 1,266,191

Equity instruments

Residents

- Shares - (302,597)

- 3,641,942

38. INCOME FROM SALE OF OTHER ASSETS In 2018 and 2017 this item was made up as follows:

2018 2017

Non-current assets held for sale (Note 13) 1,426,082 324,973

Other tangible assets (Note 15) (387) -

Gold and precious metals (446,306) (306,369)

Other 101,386 (46,572)

1,080,775 (27,968)

The Non-current assets held for sale item reflects the gains and losses from the sale of properties recovered by the Bank. During 2018, 35 properties were sold for 7,758,647 euros (2017: 2,636,500 euros), having generated gains totalling 1,426,082 euros (2017: 324,973 euros). The increase observed in this item is essentially due to the increase in the sale value of the properties recovered during 2018.

The Other item refers to gains on the disposal of securities from the portfolio of investments at amortised cost.

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39. OPERATING INCOME / (LOSSES)


2018 2017

Other operating income:

- Reimbursement of expenses 144,495 123,676

- Recovery of loans 255,244 -

- Income from provision of sundry services 7,053 8,355

- Rents 752,543 839,117

- Other 215,353 (103,655)

1,374,688 867,493

Other operating expenses:

Other taxes

- Special contribution on the banking sector (214,447) (241,097)

Other indirect taxes (154,060) (278,785)

Other operating expenses and losses

- Contributions to the Resolution Fund (88,006) (100,865)

- Levies and donations (60,015) (70,811)

- Contributions to the Deposit Guarantee Fund (676) (275)

- Other operating expenses and losses (15,369) (13,301)

(532,573) (705,134)

Other operating results 842,115 162,359

The Rents item reflects the rents received from properties recovered by the Bank and properties that belong to the assets of the Fundo Tejo that are rented out.

With the publication of Law 55 - A/2010, of 31 December, the Bank is subject to the banking sector contribution scheme. The banking sector contribution is levied on:

a) Liabilities deducted from tier 1 and tier 2 capital and from the deposits covered by the Deposits Guarantee Fund. The following are deducted from liabilities:

- Elements that according to the applicable accounting standards are recognised as shareholders’ equity; - Liabilities associated to defined benefit plans; - Provisions; - Liabilities resulting from the revaluation of derivatives; - Deferred income, without considering that which results from borrowing operations; and - Liabilities resulting from assets not derecognised in securitisation operations.

b) The notional amount of off-balance sheet derivative financial instruments determined by taxpayers.

The rates applicable to the bases defined by the previous sub-paragraphs a) and b) vary between o.01% and 0.05% and 0.00010% and 0.00020%, respectively, according to the determined amount.

During 2013, the Bank initiated its contribution to the Resolution Fund, which was created by Decree-Law 31-A/2012, of 10 February, and which introduced a resolution regime in the General Regime for Credit Institutions and Financial Companies, approved by Decree-Law 289/92, of 31 December.

The measures provided for in the new scheme seek to, on a case by case basis, recover or prepare ordered liquidation of credit institutions and certain investment companies undergoing financial difficulty and they provide for three phases of intervention by the Bank of Portugal, namely corrective intervention, interim administration and resolution phases.

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Accordingly, the main mission of the Resolution Fund consists of providing financial support in the application of resolution measures adopted by the Bank of Portugal.

In 2018 and 2017 the Bank recorded a periodic contribution of 73,006 euros and 50,865 euros, respectively.

Under the terms of article 153-H of the General Regime for Credit Institutions and Financial Companies that transposed articles 100, no. 4, sub-paragraph a), and 103, no. 1, of Directive 2015/59/EU of the European Parliament and of the Council, of 15 May 2014, and article 20, of the Delegated Regulation (EU) No. 2015/63 of the Commission, of 21 October 2014 (“Delegated Regulation”), in 2016 the first ex-ante contribution to the Single Resolution Fund (FUR) in the amount of 101,582 euros was made. It is incumbent on the Bank of Portugal, as the resolution authority, to determine these contributions in proportion to the risk profile of the participating institutions, based on the information provided by those same institutions and on the methodology defined in the Delegated Regulation. In 2018 and 2017 the contribution came to 15,000 euros and 50,000 euros, respectively.

40. STAFF COSTS


2018 2017

Salaries and earnings

- Governing Bodies 784,458 864,804

- Employees 7,389,794 5,862,559

8,174,252 6,727,363

Social Security charges

Charges related to remunerations:

- Social Security 1,697,053 1,436,191

Other compulsory social charges:

- Other 79,486 56,368

1.776.539 1.492.559

Other staff costs

- Others 203,013 166,314

10,153,804 8,386,236

As at 31 December 2018 and 2017, the average number of employees at the service of the Bank, broken down by professional category, was as follows:

2018 2017

Directors 6 7

Executives and managers 40 26

Technical staff 204 180

Administrative staf 6 6

256 219

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41. GENERAL ADMINISTRATIVE COSTS


2018 2017

Water, electricity and fuel 347,613 321,129

Consumables 40,265 72,259

Publications 4,355 4,598

Hygiene and cleaning material 666 1,089

Other third party supplies 19,380 13,998

Leases and rentals 909,694 918,646

Communications 881,675 818,800

Travel and accommodation 340,587 314,046

Advertising and publications 1,140,443 698,834

Maintenance and repair 602,150 557,741

Transport 615 728

Staff training 23,845 7,303

Insurance 124,555 128,973

Specialised services 2,959,839 2,199,537

Other third party services 297,171 227,681

7,692,853 6,285,362

The Specialised services item includes the fees of the Statutory Auditor for the legal certification of the accounts of the Bank with reference to the financial year ended on 31 December 2018, which came to 70,030 euros (2017: 49,101 euros). Over the course of the financial year ended on 31 December 2017, additional services in the amount of 119,845 euros (2017: 87,712 euros) were also invoiced to the Bank, with reference to work arising from the function of statutory auditor required by the regulations of the supervisory entities.

The Specialised services item also includes the litigation and notary costs which in 2018 came to 596,646 euros (2017: 298.890 Euros), as well as IT costs which in 2018 came to 590,407 euros (2017: 502,144 euros).

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42. RELATED ENTITIES

Entities related to Banco Invest are those entities in which the Bank exercises direct or indirect control or significant influence over its management and financial and operational policy (Subsidiaries or associates) and entities that exert significant influence over the Bank’s management, namely shareholders or entities they control and staff belonging to the governing bodies.

Shareholders and entities controlled by the latter:- AR France Invest (ARFI);- ALRISA Sociedade Imobiliária, S.A.;- Alves Ribeiro - Investimentos Financeiros, SGPS, S.A.;- Alves Ribeiro Consultoria de Gestão, S.A.;- Alves Ribeiro, S.A.;- Amoreiras Center Soc. Imobiliária, SA- Inspirar – Fundo Especial de Investimento Imobiliário Fechado (Fundo Inspirar);- LERIMO, SGPS, S.A.;- Monvest, SGPS, S.A.;- Motor Park - Comércio de Veículos Automóveis, S.A.;- MS - Participações, SGPS, S.A.;- Mundicenter II - Gestão de Espaços Comerciais, S.A.;- Mundicenter, S.A.;- SOTIF Soc. Invest. Consultoria Técnica, SA- SOTIF, SGPS, S.A.;- US Gestar – Gestão de imóveis, S.A. (US Gestar); e- VALRI, SGPS, S.A..

Governing bodies - members of the Board of Directors:- Afonso Ribeiro Pereira de Sousa (Chairman);- António Miguel R. R. Branco Amaral (Deputy Chairman);- Francisco Manuel Ribeiro (Member);- Luís Miguel Barradas Ferreira (Member);- Marilia Boavida Correia Cabral (Member);- Carlos António A. da Cunha Ramalho (Non-executive member);- Alexandre Wende Dias da Cunha (Non-executive member); and- Miguel Alves Ribeiro F. de Carvalho (Non-executive member).

Governing bodies - members of the Audit Board:- Jean-éric Gaign (Chairman);- José Manuel L. Neves de Almeida (Member); and- Luís Alberto M. Póvoas Janeiro (Member).

Governing bodies - alternate members of the Audit Board:- Donato João Lourenço Viçoso (Alternate member).

Other related entities:- Crest Capital Partners - Socidade de Capital de Risco, S.A.; and- CREST I – FCR (Fundo Crest).

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Balances with related entities, excluding governing bodies

As at 31 December 2018 and 2017, the main balances with related entities were as follows:


Financial assets held for trading

Alves Ribeiro Consultoria de Gestão, S.A. 2,826,771 1,608,460

Financial assets available for sale

Fundo Inspirar - 5,233,000


Fundo Inspirar 4,114,093 -

Fundo Crest 1,368,874 -


Alves Ribeiro - Investimentos Financeiros, SGPS, S.A. 14,949,250 15,069,967

US Gestar 518,570 800,000

Monvest, SGPS, S.A. 467,680 585,452

Resources from customers

Alves Ribeiro, SA 24,749,844 37,509,870

VALRI, SGPS, S.A. 7,416,854 7,362,642

SOTIF, SGPS, S.A. 9,658,616 6,678,719

MS - Participações, SGPS, S.A. 3,843,172 2,313,431

Fundo Tejo 2,131,182 1,769,359

US Gestar 45,529 172,669

Fundo Inspirar 1,073,904 281,590

LERIMO, SGPS, S.A. 352,419 121,504

Alves Ribeiro Consultoria de Gestão, S.A. 1,102 1 7,475

Alves Ribeiro - Investimentos Financeiros, SGPS, S.A. 9,403 7,789

Mundicenter, S.A. 485 400

Amoreiras Center Soc. Imobiliária 689 689

Alrisa Sociedade Imobiliária, SA 10,777 10,967

Var - Soc. Consultoria Técnica e Inv, SA 217,081 138,625

SCO - Sociedade investimento e consultoria 440,646 406,687

SOTIF - Soc. Invest Consultoria Técnica SA 240,565 138,625

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Transactions with related entities, excluding governing bodies

In 2018 and 2017, the main balances in the income statement with related entities were as follows:

2018 2017

Interest and similar income

Alves Ribeiro - Investimentos Financeiros, SGPS, S.A. 186,878 198,577

Monvest - SGPS, SA 13,201 14,680

US Gestar 4,234 6,546

Interest and similar charges

VALRI, SGPS, S.A. 62,152 64,822

SOTIF, SGPS, S.A. 66,194 38,526

MS - Participações, SGPS, S.A. 23,506 10,755

LERIMO, SGPS, S.A. 973 552

SCO - Sociedade investimento e consultoria 3,721 2,751

SOTIF - Soc. Invest Consultoria Técnica SA 1,357 1,430

Var - Soc. Consultoria Técnica e Inv, SA 1,066 1,059

Alves Ribeiro, SA 175,071 257,193

Income from services and commissions

Alves Ribeiro - Investimentos Financeiros, SGPS, S.A. 835 835

General administrative costs

Alrisa 428,270 401,831

Alves Ribeiro, SA - 44,349

Transactions with related entities are usually based on market values on the respective dates.

In 2008, Banco Invest subscribed investment units of the Fundo Inspirar, Real Estate Investment Fund, whose shareholding was subsequently increased via the subscription to an increase in the Fund’s capital in 2013.

In 2012, and taking into consideration the real estate market situation in Portugal and the expected evolution and risks to which the Bank could be exposed, a fixed-term sales contract was concluded between Banco Invest and Alves Ribeiro CG for the acquisition, by this entity, until 26 March 2017, of the units of investment held at that date by Banco Invest in the Fundo Inspirar. This acquisition would be carried out at acquisition cost on the referred date, plus a remuneration value.

In 2013, a capital increase of 1,933,000 euros, corresponding to 9,665 investments units subscribed by Banco Invest, was deliberated at a general meeting of the fund’s participants. On this basis, and considering the additional exposure and rationale underlying the first operation, a new fixed-term sales contract was concluded under the same terms as the previous contract and which defines the possibility of acquiring the investment units until 26 March 2017.

These contracts were subject to a series of addendums over the last few years due to interest rate adjustments. On 22 March 2017, and taking into consideration the initial deadline for the fixed-term sale operations that ended on 26 March 2017 and in view of the maintenance of interest in the operation, 2 specific addendums were singed related to the prorogation of the deadline for the exercise of the acquisition option until 22 March 2022.

Under the IFRS accounting framework, the investment units are recorded as Financial assets not held for trading mandatorily at fair value through profit or loss, as described in accounting policy note 2.5 a) iii). The fixed-term sale contracts are recorded as Financial assets at fair value offset against profit or loss - Trading derivatives, as described in accounting policy note 2.4 c)

As at 31 December 2018, the investment units are valued at 4,114,093 euros, which corresponds to the fair value of the investment units as at 31 December 2018. The fixed-term sale contracts are valued at 2,826,771 euros (which corresponds to 1,764,154 euros of fair value and 1,062,617 of interest).

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Balances with the Governing Bodies

As at 31 December 2018, the amount of Resources from Customers of Governing Bodies came to 1,762,740 euros.

Employees that belong to the Governing Bodies

As at 31 December 2018, the amount of loans granted to members of the Board of Directors came to 684,318 euros (31 December 2017: 451,500 euros), with the same conditions having been applied to the other employees.

Remuneration Policy

The Remuneration Commission, made up of three shareholder representatives and elected in General Assembly, determines the remuneration policy of the members of the governing bodies of Banco Invest, as well as the social security schemes and of other supplementary contributions. The remuneration policy was submitted for approval to the General Meeting, following the proposal of the Remuneration Commission, in accordance with the following guidelines:a) Obtainment of the desired alignment of the interests between the members of the governing bodies and the company; b) Promotion and coherence with a sound and prudent risk management, which does not encourage excessive and reckless

risk-taking that is incompatible with the long-term interests of the Bank; andc) Compatibility with the risk profile, risk appetite, corporate strategy, objectives, values and long-term interests of Banco

Invest.

The remuneration policy is summarised as follows:a) The fixed remuneration of the identified employees should reflect their professional experience and organisational

responsibility, and shall represent between 75% and 100% of the overall remuneration;b) The fixed component of the remuneration should remunerate the executive members of the Board of Directors for the

responsibilities inherent to their functions and for their specific competencies, and shall represent between 65% and 100% of the overall remuneration;

c) The variable remuneration should adjust appropriately to the variations in performance of the specific staff member in the preceding year, of the business unit and of the overall results of the Bank;

d) The variable remuneration of the employees identified as having a significant impact on the risk profile and executive members of the Board of Directors is subject to:

1. Deferral of at least 40% of the variable remuneration for a minimum period of 3 years; and 2. Mechanisms of reduction or reversal of up to 100% of the total variable remuneration.e) The non-executive members of the Board of Directors and members of the Audit Board earn a fixed remuneration, not

related, in any way, to the performance or results of the Bank;f) The Remuneration Commission is solely responsible for assessing the performance of the members of the governing

bodies, while the Board of Directors is responsible for assessing the performance of the identified employees and proposing to the Remuneration Commission their remuneration for each year.

In 2018, there was no share grant scheme or share options scheme in force that included members of the governing bodies;

The remuneration policy was approved by the General Meeting on 29 March 2018, which may be consulted at any time on the website of Banco Invest.

The annual amount of remuneration earned by the members of the governing bodies was as follows:

a) Board of Directors

The remuneration earned by the executive members of the Board of Directors in 2018 came to 784,458 euros. This amount includes the variable remuneration (if any, as set out below) and the fixed remunerations received and paid in 14 instalments.

It is important to mention that the non-executive members of the Board of Directors did not earn any remuneration in 2018.

b) Audit Board

The members of the Audit Board did not earn any variable remuneration in 2018.

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43. DISCLOSURES RELATING TO FINANCIAL INSTRUMENTS

Management policies for financial risks inherent to Banco Invest’s business

Authorised risk limits and exposure levels are established and approved by the Board of Directors, bearing in mind the overall strategy of Banco Invest and its market positioning.

The institution’s risk management procedure respects the due separation of functions and complementarity of operation of each of the areas involved. Proper cooperation between the Investment Committee, the Credit Division and the Planning and Control Division ensures compliance with the limits set by the Board of Directors.The disclosures required by IFRS 7 – Financial instruments: Disclosures are presented below, regarding the main types of risks inherent to the Bank’s business.

Credit risk

Credit risk is the possible loss of value of the Bank’s assets through the non-fulfilment of a contract, insolvency or the inability of individuals or corporate persons to honour their commitments with Banco Invest.

The identification, assessment, follow-up and permanent control of credit risk leads to prompt monitoring. This permits the anticipation of a potential default, with the risks arising from all the Institution’s activities being covered, at both the individual credit level and in terms of the Bank’s entire portfolio.

Maximum exposure to credit risk

As at 31 December 2018 and 2017, the maximum exposure to credit risk by type of financial instrument was summarised as follows:

2018

Gross Provisions and Net value impairment value

Assets Cash and deposits at Central Banks 3,588,620 - 3,588,620

Amounts owed by other credit institutions 11,713,894 - 11,713,894

Financial assets held for trading:

- Securities 48,485,244 - 48,485,244

- Derivatives 3,395,296 - 3,395,296

Financial assets at fair value through other comprehensive income 98,761,930 - 98,761,930

Financial assets at amortised cost:

Deposits at credit institutions 2,535,337 - 2,535,337

Loans and advances to customers:

- Loans not represented by securities 338,480,032 (26,316,481) 312,163,551

- Other loans and receivables (securitised) 233,339,182 (460,732) 232,878,450

Other assets:

- Debtors and other financial investments 1,870,438 - 1,870,438

742,169,973 (26,777,213) 715,392,760

Off-balance sheet

Guarantees provided 2,906,621 - 2,906,621

745,076,594 (26,777,213) 718,299,381

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2017

Gross Provisions and Net value impairment value

Assets Cash and deposits at Central Banks 8,014,553 - 8,014,553Amounts owed by other credit institutions 6,424,253 - 6,424,253Financial assets held for trading:- Securities 34,621,236 - 34,621,236- Derivatives 1,874,128 - 1,874,128Financial assets available for sale 76,381,202 (3,773,369) 72,607,833Deposits at credit institutions 1,400,055 - 1,400,055Loans and advances to customers: - Loans not represented by securities 281,816,289 (28,483,680) 253,332,609- Other loans and receivables (securitised) 72,102,703 (299,347) 71,803,356Investments held to maturity 101,902,862 - 101,902,862Other assets:- Debtors and other financial investments 3,893,918 - 3,893,918

588,431,198 (32,556,396) 555,874,802

Off-balance sheet Guarantees provided 2,373,480 - 2,373,480

590,804,678 (32,556,396) 558,248,281

Credit quality of financial assets without defaults or impairments

The Bank’s loan portfolio, based on the information contained in the preceding Notes, includes three major homogeneous groups:

- A more significant group, consisting of real estate financing operations for acquisition or own construction, directed at corporate customers, with long-term maturities and having as collateral legal property (in real estate leasing operations) or a first degree mortgage (in the case of mortgage loans) on the financed properties;

- The second group of loans, comprising vehicle loan operations, directed at corporate and private customers, with medium-term maturities, is a business with potential growth over the next few years;

- A third less significant group, formed by financing operations for margin accounts, with the pledge of securities portfolios, listing on an official market and liquidity, and also very short-term operations with pledging of precious metals.

This third group of loans, due to its short- term and very short-term nature, has an excellent turnover, allowing for a quick portfolio revitalisation. Rigorous risk monitoring policy and very prudent collateral eligibility policy, limited by a regulated market that is fluid, lead to significantly reduced exposure to risk.

The same cannot be said for real estate loans, which because of their long-term maturity lead to a portfolio marked by operations that originate in different periods of time and therefore have different degrees of exposure to risk.

As such, while it is true that the policy for granting new loans has adapted to successive economic climate scenarios, in line with more prudent policies, with regard to the existing portfolio, the main challenge that the Bank faced was implementing effective means for managing the portfolio in terms of monitoring, managing and evaluating risk.

Notwithstanding, the Bank will maintain and continue to reinforce the measures required to preserve the quality and integrity of its loan portfolio.

1. Regarding the risk management policy

With an experienced team, consolidated policies and over 21 years of operation, the Bank boasts a series of resources that allows for:

- Real time monitoring of impairment or risk signs;

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- Daily control of non-compliance situations (total or partial) regarding contractual obligations, whether of a monetary nature or other nature;

- Automatic adjustment of the internal risk rating; - Automatic issue of alerts sent to the Customer Managers and Credit Department, Recovery Department and Legal

Department; - Issuing and sending to Holders and their Guarantors, notifications related to non-compliance with explanation of

origin, maturity date, charges owed, means of settlement and consequences of non-compliance; - Historic record of all events, diligences taken and their results.

In terms of managing credit risk, the Bank undertakes to do the following in accordance with the Procedures Manual in effect:

- constantly monitor greatest risks, in terms of value; - follow-up on sectorial risk, acting to safeguard its legitimate rights and the integrity of the credit guarantees, while

respecting applicable legislation and seeking out means that always, as much as possible, favour negotiable solutions that do not involve the courts.

Practical application of specific legislation aimed at protecting bank customers that are in a difficult economic situation, within the scope of the PARI or PERSI scheme, always and when applicable, constitutes regular procedure for the Bank.

2. Loan write-off policy:

When considering risk of non-fulfilment, the Bank fully respects, in recognising impairment, the guidelines of Circular Letter CC/2018/00000062, of 14-11 of the Bank of Portugal.

The Credit Recovery Department monitors the past due exposures that comply with the requirements of classification as irrecoverable and drafts a classification proposal and prepares the corresponding dossiers.

An exposure to credit risk is classified as irrecoverable under the following conditions: i. In Enforcement proceedings, when the case is dismissed, due to a lack of seizable assets of the defendants (Debtor or

Guarantors); ii. In Insolvency proceedings, when of a limited nature (lack of seizable assets of the insolvent debtor), following a

decision on the verification and ranking of claims; iii. In Insolvency Plans or Credit Recovery Procedures when, based on the approved repayment plan, there is a full or

partial writing off of the acknowledged debts; iv. Overdue loans for more than two years in a scenario of total impairment, i.e. when the Bank, after undertaking

all recovery efforts considered adequate and gathering available evidence, justifiably concludes that there are no reasonable expectations of recovery of the amounts at risk.

The following constitute objective indicators of uncollectability of a debt: i. The circumstance of a Debtor or Guarantors whose whereabouts are unknown; ii. The fact that the extra-judicial initiatives undertaken by the Bank, duly confirmed and considered adequate, proved

ineffective in establishing a plan to restructure or recover the amounts at risk; iii. The confirmation that the Debtor or Guarantors do not have a steady income to substantiate its seizure; iv. Evidence, supported by the land register or vehicle registration, that the Debtor and Guarantors’ assets, if any, has prior

covenants or encumbrances that lead to conclude (in accordance with its probable realisation value) that their seizure, if carried out, would not enable the Bank to recover its credit;

The assessment that the enforcement of the debt, if possible, is not economically viable (unfavourable cost-benefit ratio) due to the cost and waiting time of court proceedings.

3. Impairment reversal policy:

Reversal of impairments that have already been recognised in the loan portfolio shall only occur in specific justified situations of reduction of potential risk of loss, namely:

- Upon full or partial payment of values at risk; - Upon reinforcement of loan collateral; - Following justified alteration of impairment calculation parameters: i) reduction of expected default, reduction of loss probability, in the case of calculation of impairment in a collective

manner; ii) increase of the market value of the collateral, reduction of the effective costs of maintaining and/or realising

collateral, reduced market rates applied to the updating of the probable value of realising collateral, in the event of calculating impairment via individual analysis.

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4. Description of the restructuring measures applied to past due loans, control and monitoring mechanisms:

Credit restructuring measures are defined on a case by case basis in accordance with the risk analysis in question. They shall be based on a specific credit dossier to be submitted for approval in accordance with the applicable Manual.

They may include: i) extension of the repayment deadline; ii) granting of a grace period for the principal; iii) deferral of repayment of part of the financed amount toward the end of maturity or iv) capitalisation of the overdue amount.

Whenever possible, the Bank seeks to obtain reinforcement of loan guarantees and/or payment of past due interest.

Restructured credit is marked and monitored pursuant to Bank of Portugal terms and depending on the difficulties of the Debtor, the corresponding credit impairments are then calculated via individual analysis.

In 2017, one of the criteria that the Bank used for credit risk analysis of its loan portfolio was the distribution of the portfolio according to the number of past due monthly instalments. The risk categories used were as follows:

- [0,1] – Loans with zero or one past due monthly instalment; - [2,3] – Loans with two or three past due monthly instalments; - [4,5] – Loans with four or five past due monthly instalments; - [6,+[ – Loans with six or more past due monthly instalments.

As at 31 December 2017, the Bank’s loan portfolio according to the risk categories identified above is as follows:

2017

Risk category

Type of contract [0,1] [2,3] [4,5] [6,+[ Total

Current accounts 17,032,821 - - 100,076 17,132,896

Medium and long-term loans 64,617,382 907,189 450,624 12,340,698 78,315,893

Real estate leasing 42,489,613 989,121 1,133,100 4,181,696 48,793,529

Equipment leasing 354,477 - - 156,993 511,470

Consumer credit and auto loans 92,444,306 688,290 314,923 146,777 93,594,296

Current account overdrafts 3,039,785 - - - 3,039,785

Other loans 5,506,286 2,088,623 1,183,509 3,166,321 11,944,738

225,484,670 4,673,223 3,082,156 20,092,561 253,332,608

The commissions associated to loans were not considered in the preparation of these tables.

As at 31 December 2018, the Bank’s loan portfolio according to the stages defined in note 2.5 is as follows:

2018

Risk category

Type of contract Stage 1 Stage 2 Stage 3 Total

Current accounts 17,065,768 - 77,681 17,143,449


Real estate leasing 31,672,773 2,873,380 6,570,751 41,116,904

Equipment leasing 313,535 4,415 176,421 494,371

Other loans 3,487,965 1,808,460 5,475,048 10,771,473

Consumer credit and auto loans 166,691,402 1,473,649 1,405,360 169,570,411

Current account overdrafts 2,696,466 - - 2,696,466

267,498,226 8,033,704 28,441,535 303,973,465

The commissions associated to loans and accrued interest were not considered in the preparation of these tables.

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The main collaterals received by the Bank relative to the financial assets identified above are as follows:

- In the case of real estate leasing transactions, the effective guarantee is comprised by the legal title of the property.

- In the case of medium and long-term loans, the collateral is generally comprised by a first mortgage of urban real property, a situation that is also common in loans associated with a current account regime.

- In one-off situations, the Bank also obtains commercial liens on financial assets, composed by liquid assets or securities quoted in official markets, as well as net intangible assets subject to current market valuation such as, for example, goodwill rights over pharmacy establishments.

- In general, and considering the maturity date of the operations, independently of the form of ownership, the obtainment of personal guarantees (acceptances or sureties) is common practice.

The assets purchased for financial leasing operations, or received as mortgage guarantee, are covered in the event of an accident or act of God, via multi-risk insurance with the corresponding rights in favour of the Bank.

The Bank’s loan portfolio is segmented according to nature, specific characteristics and types of collateral, as stated above.

As such, the following are submitted to a process of evaluation and calculation by homogeneous and autonomous groups: i) loans of a real estate nature and origin, ii) credit in margin accounts, guaranteed by securities portfolios, and, iii) loans with precious metals as collateral.

When calculating impairments, Banco Invest takes into account the general principles defined in the International Financial Reporting Standards (IFRS 9 as of 1 January 2018 and IAS 39 until 31 December 2017) and follows Bank of Portugal requirements stipulated in Circular Letter CC/2018/00000062 (which revokes Circular Letter CC/2018/00000006 and 02/2014/DSP).

Definition of the exposures to analyse collectively and individually respects the aforementioned precepts and it should be mentioned that the Bank submits the following for individual analysis, in addition to those determined by the Bank of Portugal: i) all exposures considered relevant (which according to Banco Invest involve values at risk that exceed 500,000 euros), ii) exposures to some sectors in which risk concentration is considered relevant, (even without non-fulfilment, signs of impairment or risk); iii) restructured loans; iv) healed loans; and also, v) possible exposure to Group companies or companies that are directly and indirectly related.

It should be pointed out that when calculating impairments, not only are past due and unpaid amounts considered at risk when they exist, but also maturing principal and accrued interest that has not yet matured.

However, when calculating the execution amount of collateral, i.e. the probable amount of the realisation of the credits, the costs related to their realisation are considered, as regulated by the Bank of Portugal. In the particular case of real estate, said realisation value, less probable expenses related to maintenance and sale, is updated at the interest rate of the associated contract for the amount of time estimated for its recovery and sale.

Because real estate guarantees have a relevant impact on the overall Bank loan portfolio, it is important to note that properties are subject to multi-risk insurance, this practice being in fact implemented and effectively applied with the aim of maintaining the integrity of the collateral, safeguarding rights in case of indemnity; the Bank preventively acquires these insurance policies by its own initiative whenever the financing contracts enter into a situation of continuous non-fulfilment, litigation or the properties are recovered to settle own credit.

Maintenance of the recovered property when settling own credit is also assured by the Bank as a means of preserving its realisation amounts.

There is a well-defined practice of regular revaluation - based on objective and independent criteria - of the collaterals associated to credit operations with default, or recovered property when settling own credit, in order to guarantee that the records of the Bank reflect, at any moment, the realisation potential that is associated to them.

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In relation to the credit risk control associated with capital markets, derivative product and exchange rate transactions, the Bank maintains procedures established through the investment approval process, the control of the fulfilment of strategies defined by the Board of Directors and the Investment Committee and the regular follow-up of the composition and evolution of the securities portfolio, which permit the adequate monitoring of the credit risk associated with the securities held in portfolio.

As of September 2016, the Bank began to grant loans for the acquisition of vehicles. Loans are granted in this segment for the acquisition of new and used vehicles, with financing maturities of up to 120 months.

The Bank undertakes a mark-to-market revaluation, at any moment, of its exposure to derivative, exchange rate and capital market products, thus evaluating its potential and global exposure and the fulfilment of the exposure limits defined by sector and by country.

As at 31 December 2018 and 2017, the credit risk associated with the Bank’s security portfolio, can be demonstrated via the rating, being presented as follows:

2018

Ratings

AA A BBB BB B CCC C N.R. Total

Ativos

Ativos financeirosdetidos para 2,502,044 8,208,785 32,535,810 4,665,345 519,730 - - 53,530 48,485,244 negociação

Ativos financeiros pelo justo valor através de 17,952,975 22,199,119 48,337,313 4,334,312 5,938,211 - - - 98,761,930 outro rendimento integral

Ativos financeiros ao custo amortizado - 15,648,424 14,997,714 139,913,402 57,294,290 5,024,620 - - - 232,878,450 Títulos de dívida

36,103,443 45,405,618 220,786,525 66,293,947 11,482,561 - - 53,530 380,125,624

2017

Ratings

AA A BBB BB B CCC C N.R. Total

Ativos

Ativos financeirosdetidos para - 5,591,537 27,327,052 1,192,196 414,251 - - 96,200 34,621,236 negociação

Ativos financeiros disponíveis para 1,504,364 7,099,184 47,316,106 12,306,958 - 988,299 - 3,392,922 72,607,833 venda

Investimentos detidosaté à maturidade - 4,587,495 86,034,592 11,280,775 - - - - 101,902,862

Activos financeiros ao custo amortizado - Títulos de dívida - 12,373,437 24,396,132 27,990,093 7,043,694 - - - 71,803,356

1,504,364 29,651,653 185,073,882 52,770,022 7,457,945 988,299 - 3,489,122 280,935,287

N.R. – Not Rated

In preparation of this disclosure, relative to 2018 and 2017, the internal rating attributed by the Bank and the rating attributed by an external company specialised in risk assessment was considered.

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As at 31 December 2018 and 2017, the exposure by country associated to the Bank’s security portfolio, is presented as follows:

2018 2017

Banks Government Debt Other Total Banks Government Debt Other Total

Portugal 6,714,005 23,402,839 99,490,148 129,606,992 6,613,786 28,405,144 73,565,990 108,584,920

Spain 6,518,713 55,235,885 3,742,900 65,497,498 6,084,605 57,475,896 5,692,496 69,252,997

Holland - - 51,582,695 51,582,695 - - 41,090,967 41,090,967

Italy 7,014,522 30,985,528 8,901,951 46,902,001 2,141,514 21,437,785 3,760,032 27,339,331

Great Britain 2,517,251 - 12,380,414 14,897,665 2,622,098 - 8,225,067 10,847,165

USA 9,789,313 9,413,794 981,747 20,184,854 4,435,717 489,522 1,016,357 5,941,596

Germany 7,696,941 - 5,861,017 13,557,958 2,056,018 - 3,124,739 5,180,757

Switzeland 6,004,899 - - 6,004,899 1,028,561 - - 1,028,561

France 3,002,773 1,005,640 1,357,011 5,365,424 - 1,014,842 - 1,014,842

Other 7,519,952 5,398,394 13,607,292 26,525,638 2,013,434 997,392 7,643,324 10,654,150

56,778,369 125,442,080 197,905,175 380,125,624 26,995,733 109,820,581 144,118,972 280,935,286

Equity instruments and derivatives were not considered in the elaboration of these tables.

As at 31 December 2018, the financial instruments subject to impairment requirements laid down in IFRS 9, analysed by stage, are detailed in the following table:

2018

Risk category

Category Stage 1 Stage 2 Stage 3 Total

Financial assets at amortised cost

Deposits at credit institutions 2,400,000 - - 2,400,000

Loans and advances to customers 261,505,766 8,033,704 34,433,995 303,973,465

Debt securities 229,544,224 - - 229,544,224


Financial assets held for trading 57,636,963 - - 57,636,963

Financial assets not held for trading mandatorily at fair value through profit or loss 9,881,790 - - 9,881,790

Financial assets at fair value through other comprehensive income 98,265,130 - - 98,265,130

659,233,873 8,033,704 34,433,995 701,701,572

The commissions associated to loans and accrued interest were not considered in the preparation of these tables.

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As at 31 December 2018, the main parameters used in the credit loss models of a real estate origin are detailed in the following table:

Credit of a real estate origin

Probability of passing from............to............

# of years Stage 1 Stage 1/2 Stage 2 Stage 3 Stage 3 Stage 3

1 1.72% 5.55% 24.86% PD over 1 year

2 5.09% 9.35% 25.56%

3 8.68% 12.48% 27.52%

4 12.38% 15.13% 27.79%

5 15.15% 17.39% 30.59%

6 17.34% 20.07% 33.51% PD lifetime

7 20.22% 22.59% 34.69%

8 21.18% 23.19% 35.77%

9 35.14% 36.62% 46.30%

10 40.69% 42.25% 52.02%

As at 31 December 2018, the main parameters used in the popular economic credit loss models are detailed in the following table:

Popular Economic Credit

Probability of passing from............to............

# of months Stage 1 Stage 1/2 Stage 2 Stage 3 Stage 3 Stage 3

12 19.21% 34.76% 42.45%

13 14.85% 29.39% 37.51%

14 21.60% 36.97% 44.57%

15 17.79% 31.31% 39.51%

16 18.13% 30.76% 38.67%

17 18.14% 30.92% 38.93% PD over 1 year

18 19.13% 31.54% 39.26%

19 21.40% 33.54% 41.06%

20 20.77% 36.32% 43.78%

21 18.79% 32.85% 40.13%

22 21.10% 34.19% 41.32%

The Loss Given Default for credit of a real estate origin and for popular economic credit, as at 31 December 2018, is 32.69% and 7%, respectively.

Liquidity risk

Liquidity risk is the possibility that an entity may not be able to meet its commitments through an inability to access the market in a sufficient amount and at a reasonable cost.

The risk control policy is subordinate to the overall strategy of the Bank, and aims to adequately finance its assets, increase them and detect any loss of liquidity.

The policies and procedures that control and limit liquidity risk regularly review the limits of the liquidity positions for different time frames, analysing simulations using different scenarios to permit effective liquidity management.

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The Financial Department is responsible for the effective implementation of the risk strategy and all the liquidity policies established and approved by the Board.

Times to maturity

As at 31 December 2018 and 2017, the breakdown of the times to maturity of the financial instruments was as follows:

2018

Up to 3 months 1 to More than Indeterminate Other (1) Total

At sight

3 months to 1 year 5 years 5 years

Assets

Cash and deposits at Central Banks 4,233,345 - - - - - - 4,233,345

Amounts owed by other credit institutions 11,713,894 - - - - - - 11,713,894

Financial assets held for trading - 1,080,303 5,108,316 27,332,398 18,359,524 6,161,506 - 58,042,047

Financial assets not held for trading mandatorily at fair value through profit or loss - - - - - 16,012,916 - 16,012,916

Financial assets at fair value through comprehensive income - - 9,970,460 54,280,756 34,510,714 - - 98,761,930


- Deposits at credit institutions - 2,000,000 400,000 - - - 135,337 2,535,337

- Loans and advances to customers 2,696,466 2,959,000 26,034,613 43,071,967 225,506,145 11,895,360 - 312,163,551

- Debt securities - 39,385,820 20,793,757 90,117,360 82,581,513 - - 232,878,450

Debtors and other financial investments - - - - - 1,767,862 - 1,767,862

18,643,705 45,425,123 62,307,146 214,802,481 360,957,896 35,837,644 135,337 738,109,332

Liabilities

Resources from Central Banks - 17,500,000 - 39,180,000 - - - 56,680,000

Resources from other credit institutions 1,775,690 - - - - - - 1,775,690

Resources from customers and other loans 99,120,416 105,205,942 269,458,764 82,083,915 24,079,999 - 3,422,260 583,371,296

Financial liabilities held for trading - 36,648 881,060 93,008 - - - 1,010,716

Non-subordinated debt securities issued - 213,524 - - - - 1,096 214,620

100,896,106 122,956,114 270,339,824 121,356,923 24,079,999 - 3,423,356 643,052,322

Liquidity gap (82,252,401) (77,530,991) (208,032,678) 93,445,558 336,877,897 35,837,644 (3,288,019) 95,057,010

2017

Up to 3 months 1 to More than Indeterminate Other (1) Total

At sight

3 months to 1 year 5 years 5 years

Assets

Cash and deposits at Central Banks 9,144,414 - - - - - - 9,144,414

Amounts owed by other credit institutions 6,424,253 - - - - - - 6,424,253

Financial assets held for trading - 96,200 1,043,255 17,443,630 17,912,277 11,812,080 - 48,307,442

Financial assets not held for trading mandatorily at fair value through profit or loss - 1,437,310 1,014,842 47,214,551 22,941,129 13,577,282 - 86,185,114

Deposits at credit institutions - 1,000,000 400,000 - - - 55 1,400,055


- Loans not represented by secutiries 3,039,785 8,937,127 9,772,174 41,370,648 183,015,515 10,910,041 - 257,045,290

- Other loans and receivables (securitised) - 22,225,965 10,528,071 24,974,202 14,075,118 - - 71,803,356

Investments held to maturity - - - 22,729,769 79,173,093 - - 101,902,862

Debtors and other financial investments - - - - - 3,892,049 - 3,892,049

18,608,452 33,696,602 22,758,342 153,732,800 317,117,132 40,191,452 55 586,104,834

Liabilities

Resources from Central Banks - - - 39,180,000 - - - 39,180,000

Resources from other credit institutions 2,951,525 - - - - - - 2,951,525

Resources from customers and other loans 89,610,094 79,899,327 203,312,600 42,437,202 35,680,000 - 2,332,352 453,271,575

Financial liabilities held for trading - 112,316 204,634 1,521,779 - - - 1,838,729

92,561,619 80,011,643 203,517,234 83,138,981 35,680,000 - 2,332,352 497,241,829

Liquidity gap (73,953,167) (46,315,041) (180,758,892) 70,593,818 281,437,132 40,191,452 (2,332,297) 88,863,005

(1) - The Column “Other” includes interest receivable and payable, and deferred sums already received and paid.

111

The main assumptions used to draw up the tables above are the following:

- the projected contractual cash flows of interest associated with financial assets and liabilities were not considered;- the column “Other” corresponds to values already received or paid that are being deferred;- for equity instruments their maturity was considered indeterminate, having been included in the “Indeterminate” column;- in financial assets held for trading and available for sale it was considered that the instruments were only settled on their

maturity date; and- in loans and advances to customers it was considered that the principal repayment was made in full on the date of the last

credit instalment.

The short-term liquidity gap is financed by resorting to the interbank monetary market, where the Bank has access to credit lines that allow it to finance this gap, and through discounts on securities issued by the ECB, which allows it to have access to immediate liquidity.

The short-term liquidity gap is associated to the funding of the Bank’s bond portfolio. The total value of the securities portfolio is greater than the short-term gap. The Bank may at any moment reduce it by selling securities in the market. The said gap thus results from a strategic decision of the Bank to finance its securities portfolio in an efficient manner in economic terms and not from a structural deficiency of liquidity. The portfolio has been essentially financed through repurchase operations at the European Central Bank, although Banco Invest has repurchase contracts with different banking institutions.

Market risk

Banco Invest’s business through financial instruments entails the assumption or transfer of one or several kinds of risk.

Market risks are those which arise from keeping financial instruments whose value can be affected by market fluctuations. Market risks include:

a) Exchange rate risk: this arises from fluctuations in foreign currency exchange rates;b) Interest-rate risk: this arises from fluctuations in market interest rates;c) Price risk: this arises from changes in market prices, either due to factors specific to the instrument or to factors that affect

all the instruments traded on the market.

The control of market risk aims to assess and monitor the potential losses associated with changes in the price of the Bank’s assets, discretionary portfolio management and the consequent loss of profits from an adverse movement of market prices. This assessment is conducted by defining procedures and limits for global portfolios and product categories. Strategies, positions and limits are assessed daily to generate income through trading and asset and liability management, while simultaneously controlling exposure to market risk.

Exchange risk

Exchange risk is the result of fluctuations in exchange rates, whenever there are “open positions” in these currencies.

The exchange rate activity of Banco Invest is of secondary importance and residual. The daily foreign currency balances and transactions carried out in foreign currency are controlled on a daily basis by the Operations Department and the Market Room.

Only US dollar and pound transactions have any relevance, with transactions in other currencies being almost non-existent.

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As at 31 December 2018 and 2017, the breakdown of financial instruments by currency was as follows:

2018 Currency

Euros US

Gross Dollars Pound Other Total

Assets

Cash and deposits at Central Banks 4,233,345 - - - 4,233,345

Amounts at other credit institutions 8,426,159 1,582,439 1,002,500 702,796 11,713,894

Financial assets held for trading 54,663,126 2,825,532 384,112 169,277 58,042,047

Financial assets not held for trading

mandatorily at fair value through profit or loss 16,012,916 - - - 16,012,916

Financial assets at fair value through

other comprehensive income 89,348,136 9,413,794 - - 98,761,930

Financial assets at amortised cost 535,178,477 8,798,343 3,600,483 35 547,577,338

Debtors and other financial investments 1,412,227 315,781 20,597 19,257 1,767,862

709,274,386 22,935,889 5,007,692 891,365 738,109,332

Liabilities

Resources from Central Banks 56,680,000 - - - 56,680,000

Financial liabilities held for trading 1,036,884 (26,168) - - 1,010,716

Resources from other credit institutions 1,481,874 293,816 - - 1,775,690

Resources from customers and other loans 570,872,697 11,647,299 806,025 45,275 583,371,296

Non-subordinated debt securities issued 214,620 - - - 214,620

630,286,075 11,914,947 806,025 45,275 643,052,322

Net exposure (Currency Position) 78,988,311 11,020,942 4,201,667 846,090 95,057,010

2017 Currency

Euros US

Gross Dollars Pound Other Total

Assets

Cash and deposits at Central Banks 9,144,414 - - - 9,144,414

Amounts at other credit institutions 4,108,374 2,732,321 (464,901) 48,459 6,424,253

Financial assets held for trading 42,806,778 3,645,826 1,533,590 321,249 48,307,443

Financial assets held for sale 79,202,793 489,522 - - 79,692,315

Deposits at credit institutions 1,400,055 - - - 1,400,055

Loans and advances to customers 328,574,531 (238,339) 168,394 344,060 328,848,646

Investments held to maturity 89,663,105 8,492,627 3,747,130 - 101,902,862

Debtors and other financial investments 2,221,026 1,041,058 343,507 288,327 3,893,918

557,121,076 16,163,015 5,327,720 1,002,095 579,613,906

Liabilities

Resources from Central Banks 39,180,000 - - - 39,180,000

Financial liabilities held for trading 1,835,861 2,867 - - 1,838,728

Resources from other credit institutions 530,441 2,421,084 - - 2,951,525

Resources from customers and other loans 452,051,649 10,144,464 374,681 169,032 462,739,826

Liabilities represented by securities - - - - -

Financial liabilities associated to transferred assets - - - - -

493,597,951 12,568,415 374,681 169,032 506,710,079

Net exposure (Currency Position) 63,523,125 3,594,600 4,953,039 833,063 72,903,827

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The Bank considers that a 5% increase in the market exchange rates of the main currencies that the Bank is exposed to would not have a significant impact on the financial statements as at 31 December 2018 and 2017.

Interest-rate risk

Interest rate risk relates to the impact that interest rate changes have on income and on the entity’s asset value. This risk arises from the varying times to maturity or re-appreciation of assets, liabilities and off-balance sheet positions with respect to the entity, in light of changes in the interest rate curve slope. Interest rate risk therefore corresponds to the risk that the current worth of future cash flows of a financial instrument may fluctuate through changes in market interest rates.

Management of the interest rate risk is subordinate to the overall strategy of the Bank, which aims to minimise the impact of interest rate changes on the Bank’s overall profits.

The short-term interest rate risk basically arises from the mismatch of payments between the institution’s liabilities and its loan assets.

As at 31 December 2018 and 2017, the type of exposure to interest rate risk was summarised as follows:

2018

Not subject to Fixed Variable

interest rate risk rate rate Total

Assets

Cash and deposits at Central Banks 644,725 - 3,588,620 4,233,345

Amounts at other credit institutions 1,404,179 - 10,309,715 11,713,894


- Securities 6,161,507 43,846,742 4,638,502 54,646,751

- Derivatives - - 3,395,296 3,395,296

Financial assets not held for trading mandatorily

at fair value through profit or loss 16,012,916 - - 16,012,916

Financial assets at fair value through other

comprehensive income - 81,521,332 17,240,598 98,761,930


- Deposits at credit institutions - - 2,535,337 2,535,337

- Loans and advances to customers 3,451,894 131,611,617 177,100,040 312,163,551

- Debt securities - 153,515,558 79,362,892 232,878,450

Debtors and other financial investments - - 1,767,862 1,767,862

27,675,221 410,495,249 299,938,862 738,109,332

Liabilities

Resources from Central Banks - 39,180,000 17,500,000 56,680,000

Financial liabilities held for trading - 74,995 935,721 1,010,716

Resources from other credit institutions - - 1,775,690 1,775,690

Resources from customers and other loans - 106,164,323 477,206,973 583,371,296

Non-subordinated debt securities issued - - 214,620 214,620

- 145,419,318 497,633,004 643,052,322

27,675,221 265,075,931 (197,694,142) 95,057,010

Off-balance sheet

Derivatives (notional amount)

- Swaps - - 71,734,115 71,734,115

- Options 62,086,536 - - 62,086,536

- Futures 3,348,953 - 56,510,489 59,859,442

65,435,489 - 128,244,604 193,680,093

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2017

Not subject to Fixed Variable

interest rate risk rate rate Total

Assets

Cash and deposits at Central Banks 1,129,861 - 8,014,553 9,144,414

Amounts at other credit institutions 1,330,501 - 5,093,752 6,424,253


Securities 11,812,080 33,488,687 1,132,549 46,433,316

Derivatives - - 1,874,128 1,874,128

Financial assets available for sale 7,084,483 65,097,968 7,509,864 79,692,315

Deposits at credit institutions - - 1,400,055 1,400,055


Loans not represented by securities - - 257,045,291 257,045,291

Other loans and receivables (securitised) - 40,636,006 31,167,351 71,803,357

Investments held to maturity - 101,902,862 - 101,902,862

Debtors and other financial investments - - 3,893,918 3,893,918

21,356,925 241,125,523 317,131,461 579,613,909

Liabilities

Resources from Central Banks - - 39,180,000 39,180,000

Financial liabilities held for trading

- Derivatives - - 1,838,728 1,838,728

Resources from other credit institutions - - 2,951,525 2,951,525

Resources from customers and other loans - 78,117,202 375,154,372 453,271,574

Liabilities represented by securities - - - -

Financial liabilities associated to transferred assets - - - -

- 78,117,202 419,124,625 497,241,827

21,356,925 163,008,321 (101,993,164) 82,372,082

Off-balance sheet

Derivatives (notional amount)

- Swaps - - 140,066,531 140,066,531

- Options 740,434,536 - - 740,434,536

- Futures 4,798,236 - 90,009,255 94,807,491

745,232,772 - 230,075,786 975,308,558

The variable rate concept includes all transactions with maturity times of less than one year, and all others whose rate can be redefined in terms of market indicators, including the swaps whose remuneration is indexed to the performance of certain underlying assets (shares and market indices, among others).

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As at 31 December 2018 and 2017, the exposure to interest rate risk was broken down into the following periods:

2018

Up to 3 months 1 to More than

At sign 3 months to 1 year 5 years 5 years Other (1) Total

Assets

Cash and deposits at Central Banks 4,233,345 - - - - - 4,233,345

Amounts at other credit institutions 11,713,894 - - - - - 11,713,894


- Securities 6,161,507 38,080 4,584,971 23,374,629 20,487,564 - 54,646,751

- Derivatives - 467,739 100,787 2,826,770 - - 3,395,296


at fair value through profit or loss 16,012,916 - - - - - 16,012,916


other comprehensive income - 7,270,138 9,970,460 43,130,367 38,390,965 - 98,761,930


- Deposits at credit institutions - 2,000,000 400,000 - - 135,337 2,535,337

- Loans and advances to customers 6,148,359 118,080,421 44,115,459 52,342,228 79,269,393 12,207,691 312,163,551

- Debt securities - 51,728,972 27,633,920 75,002,166 78,513,392 - 232,878,450

Debtors and other financial investments - - - - - 1,767,862 1,767,862

44,270,021 179,585,350 86,805,597 196,676,160 216,661,314 14,110,890 738,109,332

Liabilities

Resources from Central Banks - 17,500,000 - 39,180,000 - - 56,680,000

Financial liabilities held for trading - 68,128 867,593 74,995 - - 1,010,716

Resources from other credit institutions 1,775,690 - - - - - 1,775,690

Resources from customers and other loans 99,120,007 105,205,947 269,458,764 82,083,915 24,079,999 3,422,664 583,371,296

Non-subordinated debt securities issued - 213,524 - - - 1,096 214,620

100,895,697 122,987,599 270,326,357 121,338,910 24,079,999 3,423,760 643,052,322

(56,625,676) 56,597,751 (183,520,760) 75,337,250 192,581,315 10,687,130 95,057,010

2017

Up to 3 months 1 to More than

At sign 3 months to 1 year 5 years 5 years Other (1) Total

Assets

Cash and deposits at Central Banks 9,144,414 - - - - - 9,144,414

Amounts at other credit institutions 6,424,253 - - - - - 6,424,253


- Securities 11,812,080 96,200 1,036,349 17,164,869 16,303,817 - 46,413,315

- Derivatives - 1,874,128 - - - - 1,874,128

Financial assets available for sale 7,084,483 6,495,023 1,014,842 42,156,838 22,941,128 - 79,692,314


- Deposits at credit institutions - 1,000,000 400,000 - - 55 1,400,055

- Loans and advances to customers 3,039,785 8,937,127 9,772,174 41,370,648 183,015,515 10,910,042 257,045,291

- Debt securities - 31,920,545 26,346,099 7,327,103 6,209,609 - 71,803,356

Investments held to maturity - - - 22,729,768 79,173,094 - 101,902,862

Debtors and other financial investments - - - - - 3,893,918 3,893,918

37,505,015 50,323,023 38,569,464 130,749,226 307,643,163 14,804,015 579,593,906

Liabilities

Resources from Central Banks - - - 39,180,000 - - 39,180,000

Financial liabilities held for trading - 1,838,728 - - - - 1,838,728

Resources from other credit institutions 2,951,525 - - - - - 2,951,525

Resources from customers and other loans 89,610,093 79,899,328 203,312,600 42,437,202 35,680,000 2,332,351 453,271,574

92,561,618 81,738,056 203,312,600 81,617,202 35,680,000 2,332,351 497,241,827

(55,056,603) (31,415,033) (164,743,136) 49,132,024 271,963,163 12,471,664 82,352,079

(1) - The Column “Other” includes interest receivable and payable, and deferred sums already received and paid.

According to the methodology described in Instruction No. 34/2018 of the Bank of Portugal, the impact on own funds arising from a 200 bps shock to the interest rate curve comes to 17,688,777 euros.

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Fair value

The Bank calculates the fair value of financial instruments based on market prices. Where there is no market price, fair value is calculated using in-house models based on specific assumptions that vary in accordance with the financial instruments to be valued. Under exceptional circumstances, when it is not possible to reliably determine the fair value, assets are valued at historical cost.

The main considerations in the calculation of the fair value of financial assets and liabilities are:

- “Cash and deposits at Central Banks” and “Amounts and deposits at other credit institutions”: Given the short-term nature of these assets, the accounting value is considered a reasonable estimate of their fair value;

- “Amounts owed by and resources from other credit institutions” and “Resources from Central Banks”: The calculation of fair value assumes that transactions are settled on the maturity dates and are updated in the “cash flows”, using the rates curve created in the closing days of the year. Bearing in mind the maturity dates of the transactions and type of interest rate, Banco Invest estimates that the difference between the fair value and the book value is not significant;

- “Loans and advances to customers”. Almost all loans and advances to customers bear interest at rates linked to the Euribor rate, the majority being re-fixed in the short-term. Regarding the portfolio spreads in force, the Bank considers that the current loan business takes place at a residual pace (and values) relative to the dimension of the portfolio, and that the transactions undertaken, as well as the respective spreads attributed, are affected by the specific characteristics of each transaction, not being representative of the remaining loan portfolio.

- Based on the fact that the current spreads in force exceed the average spread of the loan portfolio, the Bank calculated the fair value of the portfolio considering an additional spread of 1%. Based on this analysis, application of the fair value in the item “Loans and advances to customers” would result in a decline in its value of approximately 2,520,214 euros (31 December 2017: 4,329,341 euros).

It is important to point out that loan operations with pledges on financial assets and loans attributed to employees and Group companies were not included in this analysis.

- “Resources from customers and other loans”: For term deposits of less than a year, the accounting value is considered a reasonable estimate of fair value. For other deposits, the contracted spreads do not differ much from those practised in the most recent operations;

- “Financial assets and liabilities held for trading” and “Financial assets at amortised cost”: These instruments are already recorded at fair value, calculated according to;

- Prices in an active market; - Indicative prices provided by the financial information media, namely Bloomberg, largely through the Bloomberg

Generic index. - Valuation methods and techniques, where there is no active market, supported by: - mathematical calculations based on recognised financial theories; or, - prices calculated based on similar assets or liabilities traded in active markets or based on statistical estimates

or other quantitative methods; - Indicative prices provided by issuers, essentially for those cases in which, given the specific characteristics of the

security, it was not possible to use the valuation methods described above; or

- Acquisition cost when it is considered to be similar to the fair value.

A market is considered active and therefore liquid when transactions take place regularly.

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As at 31 December 2018 and 2017, the calculation of the fair value of the financial assets and liabilities of the Bank can be summed up as follows:

2018

Financial instruments valued at fair value

Assets valued Prices in an Valuation techniques based on:

at acquisition active market Market data Others Book

cost (Level 1) (Level 2) (Level 3) Total value

Assets

Financial assets held for trading (Note 9)

- Securities - 6,161,507 48,485,244 - 54,646,751 54,646,751

- Derivatives - - 3,395,296 - 3,395,296 3,395,296


at fair value through profit or loss (Note 9) - - - 16,012,916 16,012,916 16,374,589


other comprehensive income (Note 10) - - 98,761,930 - 98,761,930 98,761,930

Debt securities (Note 8) 37,641,207 - 201,324,457 4,345,765 243,311,429 232,878,450

37,641,207 6,161,507 351,966,927 20,358,681 416,128,322 406,057,016

Liabilities

Financial liabilities held for trading (Note 23)

- Derivatives - - 1,010,716 - 1,010,716 1,010,716

2017

Financial instruments valued at fair value

Assets valued Prices in an Valuation techniques based on:

at acquisition active market Market data Others Book

cost (Level 1) (Level 2) (Level 3) Total value

Assets

Financial assets held for trading (Note 9)

- Securities - 11,448,401 34,621,235 363,679 46,433,315 46,433,315

- Derivatives - - 1,874,128 - 1,874,128 1,874,128

Financial assets available for sale (Note 11) - - 72,333,867 7,358,448 79,692,315 86,185,114

Investments held to mnaturity (Note 12) - - 114,595,970 - 114,595,970 101,902,862

Loans and advances to customers - debt securities (Note 8) 17,710,283 - 55,285,107 - 72,995,390 72,102,703

17,710,283 11,448,401 278,710,307 7,722,127 315,591,118 308,498,122

Liabilities

Financial liabilities held for trading (Note 23)

- Derivatives - - 1,838,728 - 1,838,728 1,838,728

The main assumptions used to draw up the tables above are the following:

- The values relative to prices in an active market correspond to equity instruments listed on a Stock Exchange (Level 1);

- The portfolio securities whose valuation corresponds to indicative bids supplied by contributors external to the Bank or prices divulged through the financial information media, namely Bloomberg, were considered in “Valuation Techniques – Market data” (Level 2);

- The securities valued based on the Bank’s internal models are presented in “Valuation techniques - Other” (Level 3). In addition, the financial assets and liabilities are classified at Level 3 if a significant proportion of its balance sheet value results from non-observable market inputs, namely:

- Unlisted shares, bonds and derivative financial instruments that are valued based on internal models, with there being no general consensus in the market regarding which parameters to use; and

- Bonds listed though indicative bids disclosed by third parties, based on theoretical models;

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- Closed Real Estate Investment Funds valued in accordance with the asset value disclosed by the respective Management Company;

- Derivative financial instruments not valued by the market.

Regarding the securities valued through the internal model, the assumptions used were those that the Bank considered to be adequate to reflect the market value of those financial assets at the balance sheet date, including the market base interest rate, a spread reflecting the risk of each security calculated based on the rating and an expected date of reimbursement.

Short-term investments in commercial paper, recorded in the trading portfolio, are valued at amortised cost, which does not differ significantly from fair value.

44. RECLASSIFICATION OF FINANCIAL ASSETS

IAS 39 (Amendment) and IFRS 7 (Amendment) – “Reclassification of financial assets” – With this amendment, approved by the IASB on 13 October 2008, it became possible to reclassify some financial assets classified as financial assets held for trading or available for sale into other categories. The reclassification of financial assets made up to 31 October 2008, benefitted from a transitional period, within the scope of which its application was permitted with retroactive effect to 1 July 2008.

As a result of the amendments to IAS 39 described above, Banco Invest reclassified bonds, with reference to 1 July 2008 (reclassification date), from “Financial assets held for trading”, “Financial assets available for sale”, “Loans and advances to customers” and “Investments held to maturity”, as follows:

Balance sheet Balance value before Reclassifications sheet value after reclassification

Increases Decreases reclassification

Financial assets held for trading 106,016,910 - (75,830,272) 30,186,638

Financial assets available for sale 206,991,461 18,822,059 (106,921,893) 118,891,628

Loans and advances to customers – debt securities - 59,946,307 - 59,946,307

Investments held to maturity 10,278,861 103,983,798 - 114,262,659

323,287,233 182,752,165 (182,752,165) 323,287,233

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As at 31 December 2017, the book value and fair value of the reclassified financial assets with reference to 1 July 2008 are as follows:

2017

Balance sheet value on Balance sheet value Fair value as at the reclassification date as at 31-12-2017 31-12-2017

Financial assets available for sale - - -

Loans and advances to customers – debt securities 327,701 328,303 330,371

Investments held to maturity - - -

327,701 328,303 330,371

Securities sold until 31 December 2008 - n.a. n.a.

Securities sold in 2009 - n.a. n.a.




Securities sold in 2013 182,752,165 n.a. n.a.




Securities sold in 2017 (13,942,844) n.a. n.a.

182,752,165 328,303 330,371

The fair value was calculated based on the methodologies described in Note 42.

After the reclassification date with reference to 1 July 2008, the accumulated gains / (losses) associated to the change in the fair value not recognised in profit and loss and the other gains / (losses) recognised in reserves and in net income for 2017, are as follows:

2017

Gains / (losses) associated to changes Other gains/ (losses) in fair value not recognised in: recognised in:

Retained Net income Reserves Reserves Net income earnings for the year

Financial assets available for sale (1,840,580) - - - 99,236

Loans and advances to customers – debt securities (78,644) - (78,644) - 6,182

Investments held to maturity - - - - -

(1,919,224) - (78,644) - 105,418

The values relative to gains / (losses) associated to the change in the fair value not recognised in net income for the year or in reserves correspond to gains / (losses) that would affect net income or reserves if the bonds were maintained in the Financial assets held for trading portfolio or Financial assets available for sale portfolio, respectively.

The values presented in Other gains / (losses) recognised in reserves and net income for the year include the amounts relative to interest, premiums / discounts and other expenses. The values presented in other gains / (losses) recognised in reserves refer to the change in the fair value of the financial assets available for sale after the reclassification date.

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45. OWN FUNDS

The Bank maintains a conservative policy with respect to own funds management, maintaining a solvency ratio above the minimum levels required by the regulatory authorities. The Bank maintains a capital base composed exclusively by shareholders’ equity, in addition to the capacity to issue several debt instruments.

The Bank’s own funds are monitored monthly to assess the institution’s degree of solvency, with variations in relation to previous periods and the existing margin between real values and minimum capital requirements being analysed.

The procedures adopted to calculate the Bank’s prudential ratios and limits are based on the regulations issued by the Bank of Portugal, the same being applicable to all the matters that fall within the scope of the supervisory functions of the banking system. Those standards represent the legal and regulatory framework of the various matters of prudential nature.

According to the calculation method indicated above and considering the net income for the year, as at 31 December 2018 and 2017, the Bank presented a solvency ratio of 18.1% and 21.8%, respectively.

46. IFRS 9

Financial Instruments IFRS 9

In July 2014, the issued the final version of IFRS 9 - Financial Instruments. IFRS 9 enters into force for periods beginning on or after 1 January 2018, with permission for early adoption, and replaces IAS 39 Financial Instruments: Recognition and Measurement.

In October 2017, IASB issued “Advance Payments with Negative Compensation” (amendments to IFRS 9). The amendments are effective for annual periods beginning on 1 January 2019, with earlier application permitted.

IFRS 9 establishes new rules for the recognition of financial instruments presenting significant changes namely in terms of impairment requirements.

The Bank applied IFRS 9, as issued in July 2014, in the period beginning on 1 January 2018, and anticipated the adoption of the amendments made to IFRS 9 on the same date. The total impact (net of taxes) of the adoption of IFRS 9 in the retained earnings of the Bank with reference to 1 January 2018 was negative - approximately 208,000 euros.

The accounting policies in force at the Bank relative to financial instruments following the adoption of IFRS 9 on 1 January 2018, are described in note 2.5.

Classification - Financial Instruments

IFRS 9 contains a new approach for classification and measurement of financial assets that reflects the business model used in the management of assets, as well as the characteristics of their cash flows.

IFRS 9 includes 3 main categories of classification of financial assets: measured at amortised cost, measured at fair value with changes in comprehensive income (FVOCI) and measured at fair value with changes in profit and loss (FVTPL). As a result, the “Held to Maturity”, “Loans and Receivables” and “Available for Sale” categories in IAS 39 are eliminated.

A financial asset is measured at amortised cost if it complies with the following characteristics, and is not designated as FVTPL (use of the Fair Value Option):- It is held in a business model whose main objective is the holding of financial assets to collect their contractual cash flows;

and- The contractual cash flows occur on specific dates and correspond solely to payments of principal and interest (SPPI) of the

amount owed.

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A financial asset is measured at FVOCI if it complies with the following characteristics, and is not designated as FVTPL (use of the Fair Value Option):- It is held in a business model in which the objective is the collection of contractual cash flows and the sale of financial assets;

and - The contractual cash flows occur on specific dates and correspond solely to payments of principal and interest (SPPI) of the

amount owed.

On initial recognition of an equity instrument which is not held for trading, the Bank can irrevocably designate it as FVOCI. This designation is conducted instrument by instrument.

All the financial assets that are not measured at Amortised Cost or FVOCI are measured at FVTPL. In addition, on initial recognition, the Bank can irrevocably designate a financial asset which otherwise complies with the requirements to be measured at amortised cost or at FVOCI, such as FVTPL if the designation significantly eliminates the accounting mismatch which would otherwise exist (Fair Value Option).

Under IFRS 9, derivatives embedded in financial assets are not separated for classification purposes, and the hybrid instrument is valued as a whole.

Business Model Evaluation

The Bank evaluated the business model at the portfolio level, which reflects how assets are managed and how the information is made available to the management bodies. The information to be considered in this evaluation includes

- these policies, including how the management strategy focuses on receiving contractual interest, on maintaining a specific interest rate profile, on matching assets and liabilities which finance them or in the realisation of cash flows through the sale of assets;

- How the performance of the portfolio is evaluated and reported to the Board of Directors;- The evaluation of the risks that affect the performance of the business model (and of the financial assets managed under

this business model), as well as the way these risks are managed; and- The frequency, volume and timing of sales in prior periods, the reasons for such sales, and expectations about future

sales. However, sales information should be considered separately, but as part of an overall assessment of how the Bank establishes financial asset management objectives and how cash flows are obtained.

Financial assets held for trading and those that are managed and valued at fair value (Fair Value Option), will be measured at FVTPL, will be measured at FVTPL, as they are not held either for the collection of contractual cash flows or for the collection of contractual cash flows and sale of financial assets.

Assessment of contractual cash flows regarding exclusive receipt of capital and interest (SPPI)

In this assessment, “capital” is defined as the fair value of the financial asset at initial recognition. “Interest” is defined as the consideration for the time value of money, the credit risk associated with the amount owed, other risks and costs associated with the activity (e.g. liquidity risk and administrative costs) as well as a profit margin.

When evaluating the contractual cash-flows in relation to the receipt of capital and interest, the Bank considers the contractual terms of the instrument, which include the analysis of situations in which they may modify the timing and the amount of cash flows, so as not to meet this condition.

In the evaluation, the Bank considers:- Contingent events that will modify the timing and amount of cash flows;- Characteristics that result in leverage;- Advance payment and maturity extension clauses;- Clauses that may limit the right to claim cash flows in relation to specific assets – e.g. contracts with clauses that prevent

access to assets in case of default; and- Characteristics that can change the compensation for the time value of money – e.g. periodic re-initiation of interest rates.

A prepaid contract is consistent with the SPPI criterion, if the prepayment amount represents unpaid principal and interest values of the amount of capital owed, which may include reasonable compensation for the anticipated payment.

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Assessment of Impact

All the securities of the own portfolio were analysed with regards to compliance with the SPPI criterion, and some securities which did not comply with the criterion were reallocated to the fair value portfolio. The determined impact was not materially relevant.

The impacts arising from the implementation of IFRS 9 on shareholders’ equity with reference to 1 January 2018 are the following:

Total shareholdres’ Other items Retained equity attributable of shareholders’ earnings to the Bank’s equity shareholders

Shareholders’ equity as at 31 December 2017 – Before the adoption of IFRS 9 80,272,935 26,118,842 106,391,777

Impairment:

- Loans and advances to customers - (105,610) (105,610)

- Debt securities - (48,564) (48,564)

- Financial assets at fair value through other comprehensive income - (54,311) (54,311)

Change of classification of securities (356,564) 356,564 -

Deferred assets 40,890 (40,890) -

Total impact (315,674) 107,189 (208,485)

Shareholders’ equity as at 1 January 2018 – After the adoption of IFRS 9 79,957,261 26,226,031 106,183,292

In 2018, the Bank adopted IFRS 9. However, regarding this matter there is no transitory regime in Portugal that establishes the tax treatment to be adopted for transition adjustments, such that the treatment considered resulted from the Bank’s interpretation of the general rules of the Corporate Income Tax Code.

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The impacts arising from the implementation of IFRS 9 on the Bank’s balance sheet with reference to 1 January 2018 are detailed as follows:

IAS 39 IFRS 9

31 December 2017 Reclassifications Remeasurement 1 January 2018

ASSETS

Cash and deposits at Central Banks 9,144,414 - - 9,144,414

Amounts at other credit institutions 6,424,253 - - 6,424,253


- Deposits at credit institutions 1,400,055 - - 1,400,055

- Loans and advances to customers 257,045,291 - (105,610) 256,939,681

- Debt securities 71,803,356 101,902,862 (48,564) 173,657,654


- Financial assets held for trading 48,307,443 - - 48,307,443

- Financial assets not held for trading mandatorily at fair value through profit or loss - 7,084,483 - 7,084,483

Financial assets at fair value through other comprehensive income - 72,607,832 (54,311) 72,553,521

Financial assets available for sale 79,692,315 (79,692,315) - -

Financial assets held to maturity 101,902,862 (101,902,862) - -

- Investments in subsidiaries, associated companies and joint ventures 12,500 - - 12,500

Non/current assets held for sale 19,934,793 - - 19,934,793

Investment properties 4,013,100 - - 4,013,100

Other tangible assets 2,381,835 - - 2,381,835

Intangible assets 318,732 - - 318,732

Current tax assets - - - -

Deferred tax assets 7,148,582 - - 7,148,582

Other assets 9,113,010 - - 9,113,010

Total Assets 618,642,541 - (208,485) 618,434,056

LIABILITIES

Financial liabilities at amortised cost

- Resources at Central Banks 39,180,000 - - 39,180,000

- Resources from credit institutions 2,951,525 - - 2,951,525

- Customers- resources and other loans 453,271,575 - - 453,271,575

- Non-subordinated debt securities issued - - - -

Financial liabilities at fair value through profit or loss

- Financial liabilities held for trading 1,838,728 - - 1,838,728

Provisions - - - -

Current tax liabilities 151,018 - - 151,018

Deferred tax liabilities 585,097 - - 585,097

Other liabilities 14,272,821 - - 14,272,821

Total Liabilities 512,250,764 - - 512,250,764

SHAREHOLDERS’ EQUITY

Share capital 59,500,000 - - 59,500,000

Revaliuation reserves 1,647,520 - (315,674) 1,331,846

Other reserves and retained earnings 38,483,405 - 107,189 38,590,594

Net income for the year attributable to the Bank’s shareholders 5,793,594 - - 5,793,594

Total Shareholders’ Equity attributable to the Bank’s shareholders 105,424,519 - (208,485) 105,216,034

Non-controlling interests 967,258 - - 967,258

Total Shareholders’ Equity 106,391,777 - (208,485) 106,183,292

Total Liabilities and Shareholders’ Equity 618,642,541 - (208,485) 618,434,056

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The following table shows the changes to impairment losses occurred during 2018 and 2017:

2018 2017

Stage 1 Stage 2 Stage 3 Total Total

Impairment for loans

Initial balance 5.248 545 3.317.652 19.917.483 28.483.680 28.412.726

IFRS 9 transition adjustment - - 105,610 105,610 -

Impairment for credit risk losses

Changes in credit risk (2,494,906) (1,894,018) 4,126,385 (262,539) -

Loans originated or acquired 1,349,899 161,325 477,122 1,988,346 568,673

Loan repayments and maturity (1,225,368) (130,502) (2,642,746) (3,998,616) (497,719)

Transfers to

- Bucket 1 4,345,097 (4,223,777) (121,320) - n.a.

- Bucket 2 (2,216,994) 3,329,500 (1,112,506) - n.a.

- Bucket 3 (7,756,250) (13,121,580) 20,877,830 - n.a.

Impairment for loans (2,749,977) (12,561,400) 41,627,858 26,316,481 28,483,680

II - Impairment - Financial Assets, Loans and Financial Guarantee Contracts

IFRS 9 replaces the “loss incurred” model in IAS 39 with an anticipated “expected loss” model.

This will require considerable decisions on how changes in economic factors will affect “ECLs”, which will be determined on a probability-weighted basis.

The new impairment model is applicable to the following set of financial instruments that are not measured as FVTPL:- Financial instruments that are debt instruments;- Loans and contracts with financial guarantees issued (previously, the impairment was established in accordance with IAS

37 - Provisions, Liabilities and Contingent Assets).

Under IFRS 9, no impairment is recognised in equity investments.

IFRS 9 requires losses to be recognised in an amount of “ECLs” for a period of 12 months or “ECLs” for the entire duration of the contract. ECLs for the entire duration of the contract are the “ECLs” that result from all the possible defaults during the expected life of a financial instrument, while 12-month “ECLs” are the portion of ECLs that result from non-compliance events that are possible within 12 months after the reporting date.

The impairment requirements of IFRS 9 are complex and require judgement by management, forecasts and assumptions, particularly in the following areas, which are discussed in detail below:- Verification of when the credit risk of an instrument has increased significantly since the initial recognition; and- Incorporation of prospective information in the measurement of ECLs.

Measurement of ECLs

ECLs are an estimate of the probability of credit losses and will be measured as follows:- Financial assets that are not credit-impaired at the reporting date: the present value of all unpaid flows – i.e., the difference

between the cash flows in debt to the entity according to the contract and the cash flows that the Bank expects to receive;- Financial assets that are credit-impaired at the reporting date: the difference between the gross value held and the present

value of the estimated future cash flows;- Unused credit assets: the present value of the difference between contractual cash flows in debt to the Bank if the loan is

paid in full, and the cash flows expected to be received by the Bank.

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Definition of Default.

Under IFRS 9, the Bank will consider its financial assets to be in default when:- The debtor will not be able to pay its credit obligations in full, without the Bank’s support in triggering the collateral (if any);

or- The debtor is in default for at least 90 days from any material obligation of the contract to be made with the Bank. Bank

overdrafts are considered to be in default as soon as the client is in breach of a reported limit, or if it has been informed of a limit that is lower than the current amount held.

In verifying when the debtor is in default, the Bank will consider indicators that are:- Qualitative: e.g. breaches of contractual clauses or covenants;- Quantitative: e.g. default and non-payment of another obligation of the same issuer to the Bank;- Based on data developed internally and obtained from external resources.

The evaluation of inputs, regarding default of a financial instrument and its significance, may vary over time in order to reflect changes in circumstances.

Significant increase in Credit Risk

Under IFRS 9, in determining that credit risk (i.e. default risk) has increased significantly in a financial instrument since its initial recognition, the Bank will consider reasonable and bearable information that is relevant and available at no great cost or effort , including both qualitative and quantitative information, and analysis based on the Bank’s historical experience, technical credit analysis and forward-looking information.

The Bank will primarily identify how a significant increase in credit risk occurred by comparing:- The probability of default (PD) for the remaining life of the contract at the reporting date; with- The PD of the remaining contract life for the point in time which was estimated at initial recognition.

Assessing whether credit risk has increased significantly since the initial recognition of a financial instrument requires the identification of the initial recognition date of the instrument. For certain renewable credit instruments (e.g. credit cards and overdrafts), the date the credit was granted may have been a long time ago. Modification of the contractual terms of financial instruments may also affect the valuation, which is discussed below.

Determination of a significant increase in credit risk

The Bank has established a framework that incorporates qualitative and quantitative information to determine when the credit risk of the specific financial instrument has increased significantly since initial recognition. The structuring is aligned with the Bank’s internal credit risk management. The criterion for determining when credit risk has increased significantly will vary between portfolios and will include a barrier based on the delinquency of the portfolios.

Under certain circumstances, using the judgment of experts and, where possible, relevant historical experience, the Bank shall determine that an exposure has experienced a significant increase in credit risk if the specific qualitative factors so indicate and if such indicators cannot be fully covered by the quantitative analysis carried out on a periodic basis. As a barrier, and as required by IFRS 9, the Bank will presumably consider that a significant increase in credit risk occurs at the maximum when an asset is in default after 30 days of delay. The Bank will determine the days of delay by counting the number of days elapsed since the due date, in respect of which the total payment has not been received:- The criterion is capable of identifying significant increases in credit risk before an exposure is in default;- The criterion is not aligned with the time during which the asset is in arrears at 30 days;- The average time between identification and significant increase in credit and default risk appears reasonable;- Exposures are not generally transferred directly from the 12-month ECL measurement to credit impairment;- There are no unwanted volatilities in the loss adjustment, in ECL transfers from 12 months to ECLs for the remaining useful

life.

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Inputs in ECL measurement

The key inputs for measuring ECLs are predictably the following variables:- PD;- Loss Given Default (LGD); and- Exposure at Default (EAD).

These parameters derived from developed internal statistical models, and other historical data derived from regulatory models. They will be adjusted to reflect forward-looking information as described below.

Forward-looking Information

Under IFRS 9, the Bank incorporates forward-looking information both in assessing whether the credit risk of an instrument has increased significantly since initial recognition and in the measurement of ECLs.

The baseline scenario will represent the most likely outcome and will be aligned with the information used by the Bank for other purposes, such as strategic planning and budgeting. The remaining scenarios will represent scenarios of more optimistic or pessimistic results. The Bank will conduct periodic stress tests with more extreme shocks to calibrate and determine other representative scenarios.

There are three possible scenarios, Adverse, Favourable and Baseline. For credits of a real estate origin and lending credit the following economic probability is apploied for each scenario:- Baseline: 60%;- Adverse: 10%; and- Favorable: 30%.

With reference to bank overdrafts, bank loans and other loans the favourable scenario is applied, with an economic probability of 100%.

Modification and Derecognition of contracts

IFRS 9 incorporates the requirements of IAS 39 for the derecognition of financial assets and liabilities without significant changes.

However, it contains specific guidance for accounting when the modification of a financial instrument not measured to FVTPL does not result in derecognition. Under IFRS 9, the Bank recalculated the gross carrying amount of the financial asset (or the amortised cost of the financial liability), discounting modified contractual cash flows at the original effective interest rate and recognising any adjustment to gain or loss in profit or loss resulting from the modification. In accordance with IAS 39, the Bank did not recognise any gain or loss on results in the modification of financial liabilities and financial assets without signs of default that did not result in derecognition.

The adoption of these requirements had an intangible impact on the Bank.

During 2017, the Bank established cross-cutting working groups, in conjunction with external consultants, for the development of new calculation methodologies, implementation of new procedures and analysis of impacts in the two major areas of IFRS 9: Reclassification of Portfolios and Credit Impairments.

Reclassification of Portfolios

The following own portfolio activities were developed:- Impact on the financial statements from the reclassification of securities to the amortised cost portfolio, both at the

moment of reclassification and at the level of impact on impairments;- Development of the methodology to calculate impairments in terms of the portfolio recorded at amortised cost and fair

value through reserves.

All the securities of the own portfolio were analysed with regards to compliance with the SPPI criterion, and some securities which did not comply with the criterion were reallocated to the fair value portfolio. The determined impact was not materially relevant.

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Credit Impairments

Due to the profound changes arising from IFRS9, a decision was made to develop a totally new model to calculate credit impairment. To this end, a work group was established to develop the following tasks:- New algorithm to calculate lifetime probabilities;- Automatic application of lifetime PD to risk classes subject to collective analysis with delays of more than 30 days;- Automatic determination of significant increase in risk;- Definition of economic scenarios for estimated expected loss from a forward-looking perspective (in terms of PDs and

LGDs).

47. NOTES RECENTLY ISSUED

The recently issued accounting standards and interpretations that entered into force and that the Bank applied in the preparation of its financial statements are as follows:

IFRS 9 - Financial Instruments (issued in 2009 and amended in 2010, 2013 and 2014)

IFRS 9 was adopted by the Regulation of the European Commission No. 2067/2016, of 22 November 2016 (defining the entry into force at the latest as of the start date of the first financial year beginning on or after 1 January 2018).

IFRS 9 (2009) introduced new requirements for the classification and measurement of financial assets. IFRS 9 (2010) introduced additional requirements related to financial liabilities. IFRS 9 (2013) introduced the methodology of hedging. IFRS 9 (2014) made limited amendments to the classification and measurement contained in IFRS 9 and new requirements to deal with the impairment of financial assets.

The requirements of IFRS 9 represent a significant change of the current requirements set out in IAS 39, with respect to financial assets. The standard contains three categories of measurement of financial assets: amortised cost, fair value offset against other comprehensive income (OCI) and fair value offset against profit and loss. A financial asset shall be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows and the contractual terms of the financial assets give rise on specified dates to cash flows that are solely related to the nominal amount and interest in force. If the debt instrument is held within a business model that both captures the contractual cash flows of the instrument and also captures them for sale, the measurement will be at fair value offset against other comprehensive income (OCI), with interest income continuing to affect results.

For an investment in equity instruments that is not held for trading, the standard allows an irrevocable designation, on initial recognition, on an asset-by-asset basis, of presentation of the fair value movements through OCI. No amount recognised in OCI shall be reclassified to profit or loss at any future date. However, dividends generated by such investments are recognised as income in profit or loss rather than OCI, unless they clearly represent partial recovery of the investment cost.

The remaining situations, both in cases in which the financial assets are held within a trading business model and in other instruments whose sole purpose is to receive interest and amortisation of capital, are measured at fair value offset against profit or loss.

This situation also includes investments in equity instruments, regarding which the entity fails to present the alterations of the fair value through OCI, which are therefore measured at fair value with the alterations recognised in profit or loss.

The standard requires that derivatives embedded in contracts whose master contract is a financial asset within the scope of application of the standard shall not be separated; on the contrary, the hybrid financial instrument is assessed in its entirety, and, if there are embedded derivatives, they will have to be measured at fair value through profit or loss.

The standard eliminates the existing categories currently in IAS 39, “held to maturity”, “available for sale” and “accounts receivable and payable”.

IFRS 9 (2010) introduces a new requirement applicable to financial liabilities designated at fair value, by option, and comes to enforce the separation of the change in fair value component attributable to the credit risk of the entity and its presentation in OCI rather than in profit or loss. With the exception of this change, IFRS 9 transposes in general the classification and measurement guidelines contained in IAS 39 for financial liabilities, with no substantial changes.

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IFRS 9 (2013) introduced new requirements for hedge accounting that aligns the latter more closely with risk management. The requirements also establish a greater addressing of hedge accounting principles, resolving some weaknesses contained in the hedge model of IAS 39.

IFRS 9 (2014) establishes a new impairment model based on “expected losses” that will replace the current model based on “incurred loss” laid down in IAS 39.

Thus, the loss event no longer needs to exist before an impairment is constituted. This new model is intended to accelerate the recognition of losses through impairment applicable to debt instruments held, whose measurement is at amortised cost or at fair value, offset against OCI.

In the event that the credit risk of a financial asset has not increased significantly since its initial recognition, financial assets will generate a cumulative impairment equal to the expectation of the loss that can be expected over the next 12 months.

In the event that the credit risk has increased significantly, the financial asset will generate a cumulative impairment equal to the loss that can be expected up to maturity, thereby increasing the amount of impairment recognised.

Once the loss event occurs (currently known as “objective evidence of impairment”), the accumulated impairment is directly allocated to the instrument in question, its accounting treatment being similar to that laid down in IAS 39, including the treatment of respective interest.

IFRS 9 is applicable on or after 1 January 2018.

IFRS 15 - Revenue from contracts with customers

On 28 May 2014, the IASB issued the standard IFRS 15 - Revenue from Contracts with Customers. IFRS 15 was adopted by the Regulation of the European Commission No. 1905/2016, of 22 September 2016. It is of mandatory application in periods beginning on or after 1 January 2018.

Its early adoption is permitted. This standard revokes standards IAS 11 - Construction contracts, IAS 18 - Revenue, IFRIC 13 - Customer loyalty programmes, IFRIC 15 - Agreements for the construction of real estate, IFRIC 18 - Transfers of assets from customers and SIC 31 - Revenue: Barter transactions involving advertising services.

IFRS 15 determines a model based on 5 steps of analysis in order to determine when the revenue must be recognised and for what amount. The model specifies that the revenue must be recognised when an entity transfers goods or services to the customer, measured as the amount which the entity expects to be entitled to. Depending on the fulfilment of certain criteria, revenue is recognised: i) At the precise moment, when control of the goods or services is transferred to the customer; or ii) Throughout the period, to the extent that it portrays the performance of the entity.

There were no significant impacts on the consolidated financial statements related to the adoption of IFRS 15.

IFRIC 22 - Transactions in foreign currency and consideration of advances

The interpretation of the new IFRIC 22 was issued on 8 December 2016 with a mandatory application date for periods beginning on or after 1 January 2018.

The new IFRIC 22 defines that, having occurred advance payments in foreign currency for asset acquisition, expense support or income generation, by applying paragraphs 21 to 22 of IAS 21, the transaction date that must be considered in assets, income (or part thereof) and liabilities’ recognition is when the entity initially recognises the non-monetary asset or liability, resulting from the payment or receipt of the advance payment in foreign currency (or, if there were multiple advances, the rates in force in each advance).

The Bank did not record any significant changes in the adoption of this interpretation.

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Other changes

- On 20 June 2016 and applicable to periods beginning on or after 1 January 2018, amendments to IFRS 2 - Classification and Measurement of Share-based Share Transactions.

- On 8 December 2016 and applicable to periods beginning on or after 1 January 2018, amendments to IAS 40 - Transfer of investment property clarifying the time at which the entity must transfer properties under construction or development from, or to, investment properties when there is a change in the use of such properties that is supported by evidence (other than that listed in paragraph 57 of IAS 40);

- The annual improvements of the 2014-2016 cycle, issued by the IASB on 8 December 2016, introduce changes with effective date of application for periods beginning on or after 1 July 2018 to IFRS 1 (elimination of the short-term exception for first-time IFRS applicants) and IAS 28 (measurement of an associate or joint venture at fair value)..

The Bank does not anticipate any impact on the application of these changes in its financial statements.

The Bank decided against the early application of the following standards and/or interpretations adopted by the European Union.

IFRS 16 - Leases

On 13 January 2016, IASB Issued the standard IFRS 16 - Leases, mandatory for periods beginning on or after 1 January 2019. The standard was endorsed in the European Union by the Regulation of the European Commission No. 1986/2017, of 31 October. Its early adoption is permitted provided that IFRS 15 is also adopted. This standard repeals IAS 17 - Leases.

IFRS 16 removes the classification of leases as operational or financial (for the lessor- the Client of the leasing service), treating all leases as financial.

Short-term leases (less than 12 months) and leases of low-value assets (such as personal computers) are exempt from application of the requirements of the standard.

The Bank will adopt the new standard with effect from 1 January 2019. A survey of all the leasing contracts was undertaken and the impact of the adoption of the new standard on its consolidated and individual accounts was estimated. Banco Invest will apply IFRS 16 in accordance with the modified retrospective approach transition option.

Type of Leases

The Bank conducted a survey of all lease and service contracts that may include rights-of-use assets, and identified two major groups of leases:

a) Real estate leases Real estate lease contracts that constitute, under IFRS 16, a right of use, having as lease period the initial periods of

duration of the contracts and the renewal periods that depend exclusively on the Bank’s decision and that the Bank is reasonably certain of exercising.

b) Other leases Other lease contracts were also identified for printers, for instance.

The initial duration periods of the contracts and the renewal periods that depend exclusively on the Bank’s decision and that the Bank is reasonably certain to exercise were assumed.

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Transition Model

The Bank will opt to adopt the modified retrospective approach transition option. The expected range of impacts, net of taxes, on the Bank is shown below:

Banco Invest

Assets [6,700,000 ; 7,700,000[Liabilities [6,700,000 ; 7,700,000[

IFRIC 23 - Uncertainty about tax treatment of income tax

On 7 June 2017, an interpretation was issued on how to handle, for accounting purposes, uncertainties about tax treatment of income taxes, especially when tax legislation requires the payment to Authorities in the context of a tax dispute and the entity intends to appeal against the understanding behind such payment.

The interpretation has determined that the payment can be considered as a tax asset, if it is related to income taxes, in accordance with IAS 12, by applying the criterion of probability defined by the standard regarding the favourable outcome in favour of the entity on the matter concerned.

In this context, the entity may use the most probable amount method or, if the resolution can dictate ranges of values, use the expected value method.

IFRIC 23 was adopted by Commission Regulation EU 2018/1595, of 23 October, and is of mandatory application for the financial years beginning on or after 1 January 2019, and can also be adopted early.

The Bank does not expect significant changes to result from the adoption of this interpretation.

Prepayment characteristics with negative compensation (amendment to IFRS 9).

Financial assets that have negative prepayment characteristics can now be measured at amortised cost or at fair value through comprehensive income (OCI) if they meet the relevant criteria of IFRS 9. The IASB also clarified that IFRS 9 requires preparers the recalculation of the amortised cost of the modification of financial liabilities by discounting the contractual cash flows using the original effective interest rate (EIR), and any allowance for the period is recognised through profit or loss (in line with the procedure already required for financial assets). This amendment was adopted by Commission Regulation EU 2018/498 and is of mandatory implementation for the financial years beginning on or after 1 January 2019 and can also be adopted early.

The Bank does not anticipate any impact from the application of these changes to its financial statements.

Standards, amendments and interpretations issued but not yet effective for the Bank

The improvements in the 2015-2017 cycle issued by the IASB on 12 December 2017 introduce changes, effective for periods beginning on or after 1 January 2019, to IFRS 3 (re-measurement of the holding previously held as a joint venture when it obtains control over the business), IFRS 11 (non-re-measurement of the holding previously held in the joint venture when it obtains joint control over the business), IAS 12 (accounting of all tax consequences of dividend payments consistently), IAS 23 (treatment as general loans any loan originally made to develop an asset when it becomes fit for use or sale).

Other changes made by the IASB expected to come into effect on or after 1 January 2019:- Long-term interests in Associates and Joint Ventures (Amendment to IAS 28 issued on 12 October 2017) clarifying the

interaction with the application of the impairment model under IFRS 9;- Changes, cuts or settlements of the Plan (amendments to IAS 19, issued on 7 February 2018) where it is clarified that in

accounting for changes, cuts or settlements of a defined benefit plan the company shall use updated actuarial assumptions to determine the past service costs and the net interest rate for the period. The effect of the asset ceiling is not taken into account for the calculation of the gain and loss on the settlement of the plan and is dealt with separately in the other comprehensive income (OCI);

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- Changes to the definition of Business (amendment to IFRS 3, issued on 22 October 2018);- Changes to the definition of Materiality (Amendments to IAS 1 and IAS 8, issued on 31 October 2018).

The Bank does not anticipate any impact from the application of these changes to its financial statements.

48. DISCLOSURES REQUIRED BY LEGAL DIPLOMAS

According to the information required by Article 66-A and by Article 508-F of the Portuguese Commercial Companies Code:a) There are no operations that are not included in the balance sheet, such that there will be no financial impacts to report;b) The total fees billed by the Statutory Auditor for the legal certification of the annual accounts (70,030 euros) and additional

services (119,845 euros), with reference to the financial year ended on 31 December 2018, came to 189,875 euros, as mentioned in Note 41.

According to the information required by Article 21 of Decree-Law No. 411/91 and by Decree-Law No. 534/80:a) The Company has no Social Security contributions outstanding; b) The Company has no overdue taxes to the State.

49. SUBSEQUENT EVENTS

To date no relevant fact, considered material for the activity of the Bank, has occurred which has not been disclosed in the notes to the financial statements.

6. Certificação Legal de Contas

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6. Certificação Legal das Contas

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7. Relatório e Parecer do Conselho FiscalBOARD OF AUDITOR’S REPORT

CONSOLIDATED ACCOUNTS

(Free translation from a report originally issued in Portuguese language. In case of doubt the Portuguese version will always prevail.)

To the Shareholders

of Banco Invest, S.A.

In accordance with current legislation and the powers conferred on us, we hereby submit for

your consideration our Report as well as our Opinion on the activity along with the documents

rendering the consolidated accounts of Banco Invest, S.A. (Bank) relating to the financial year

ending on 31 December 2018, which have been prepared by the Board of Directors.

We were appointed on 1 February 2019, and have been active since that date. In this context,

contacts were developed with the Board of Directors, as well as clarifications obtained and in-

formation gathered from the competent services. We learned about the Entity’s activity and the

management and proceeded to verify the financial information as at 31 December 2018, and

carried out analyzes deemed convenient since we were appointed, in order to develop reasona-

ble understanding of Banco Invest, S.A.’s activity.

We verified the compliance with statutory and legal requirements in force and instructions

issued, we verified the orderliness of its accounting entries and the supporting documentation,

we verified that the accounting policies adopted by the Entity and the disclosures included in

the notes attached to the consolidated financial statements lead to a correct presentation of

the consolidated results and have carried out other procedures deemed necessary under the

circumstances.

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We have reviewed the consolidated financial statements, namely the Board of Director’s Re-

port, prepared by the Board of Directors, as well as the consolidated financial statements, whi-

ch consist of the balance sheet, the consolidated income statement, the consolidated statement

of changes in shareholders’ equity, the consolidated cash flow statement and the comprehensive

income statement and the respective notes.

We examined the content of the Statutory Auditor’s Report relative to the consolidated accou-

nts, which contains no reservations or emphasis , issued by KPMG & Associados, Sociedade de

Revisores Oficiais de Contas, S.A., dated 24 April 2019, and with which we agree.

From the Board of Directors and competent services, we have always obtained the documenta-

tion and clarifications requested, which we appreciate, concluding that:

- The consolidated financial statements provide a fair understanding of the Entity’s conso-

lidated financial position and consolidated results;

- The accounting policies adopted and disclosures are appropriate; and

- The Board of Director’s Report presents the evolution of the business and the Entity’s

situation in accordance with the legal and statutory provisions.

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In light of the above, we are of the opinion that the Shareholders’ General approves::

- The Board of Director’s report and the consolidated accounts for the year ended as at 31

December 2018;

- The proposal for the appropriation of results set forth therein.

We would also like to thank the Board of Directors and the various departments of the Bank

for their help and cooperation.

Lisbon, 24 April 2019

REPORT AND CONSOLIDATED ACCOUNTS ’17

LisboaAv. Eng. Duarte Pacheco, Torre 1 - 11º, 1070-101 LisboaTel.: +351 213 821 700 Fax: +351 213 864 984 [email protected]

PortoPç. do Bom Sucesso, nº 131 - Ed. Península, Salas 502 a 504 - 5º, 4150-146 PortoTel.: +351 226 076 390 Fax: +351 226 095 297

www.bancoinvest.pt

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